Financial Relations on the value relevance of accounting information in Tunisian Stock Exchange

This paper empirically investigates the value relevance of accounting earnings measures in the emerging capital market of Tunisia. The issue is tested by estimating the regression of annual stock returns on different earnings measures extracted from income statements. In Tunisia, firms prepare their financial statements in accordance with Tunisian Accounting Standards (TAS) which are inspired from International Financial Reporting Standards (IFRS). Based on a sample of 389 firm year observations for firms listed on the Tunis Stock Exchange (TSE) during the period 1997-2008 and using pooled regressions, we find that accounting earnings measures are weakly related to stock returns. However, earnings before taxes have the higher explanatory power for stock returns. This is perhaps due to the fact that financial statements are often influenced by taxation rules (ROSC, 2006; Paragraph 42). Further, we find that cash flow from operations and total accruals are not value relevant for valuation. We tested whether the value relevance of each measure of performance improved after the adoption in October 2005 of the Law on Strengthening the Security of Financial Relations (LSSFR). Consistent with prior US and other international findings, results show that the explanatory power and the magnitude of the slope coefficient of each measure increased when we take into account for the impac