Value Relevance of Earnings and Book Value: Evidence from Jordan

This paper examines the value relevance of earnings and book value of equity (individually and in aggregate), relative to price and return models, for Jordanian industrial companies for the period 1992 to 2002. The main findings of this paper are twofold. First, relative to price model, the value relevance of both earnings and book value (individually) have increased, whilst the value relevance of earnings increased and book value became irrelevant in their combination. Secondly, relative to return model, the value relevance of earnings either individually or in aggregate has increased while that of book value has declined. Overall, it is found that earnings are more important in explaining the variance in share price and return than book value. Furthermore, the results indicate that earnings and book value individually are more value relevant in price model. In contrast, these variables in aggregate are more value relevant in return model. The study shows that earnings help more in explaining market values in Jordanian industrial companies. This paper is the first in using price and return models in one study in Jordan.