Decision usefulness of financial reporting information of South African listed companies

M.Com. (International Accounting)Abstract: The decision usefulness of financial reporting information has received growing attention in research over the last five decades. The advent of value relevance research emerged with various approaches which investigate the relationship between elements of financial reporting information and market prices of equity instruments for making equity investment decisions. The study proves the usefulness of financial reporting information that is prepared according to International Financial Reporting Standards (IFRS) in making investment decisions to obtain investment returns that are superior to average market returns. By applying the Piotroski Model (PM), the information contained in the financial statements of the companies listed under the Industrials Sector’s Consumer Goods category on the Johannesburg Stock Exchange (JSE) is found to be useful in making investment decisions. The results recorded indicated superior returns over five year and eight year periods. The results over the short-term indicated inferior returns, however as these results incurred during the credit crisis of 2007 and 2008 it was not further unpacked and purely treated as a limitation of the study. The study concludes that financial reporting information of the JSE listed companies is useful for equity investors to make buy, hold and sell decisions. Additionally, the PM is regarded as a suitable proxy to test the decision usefulness of financial reporting information