Value relevance of financial reporting: Evidence from Malaysia

The objective of this paper is to examine the value relevance of financial reporting from a developing country perspective after the adoption of the full set of IFRS. The study utilizes the Ohlson price model to determine the value relevance of financial reporting. The findings show that generally earnings, book value of equity and cash flow from operations are useful for investment decision making, whereas, there is an increasing significance of cash flow from operations in the Malaysian Capital Market. This finding is not consistent with the rationale given by conceptual framework for financial reporting regarding the dominance of earnings in investment decision making due to the perception of managerial bias in the reported earnings and book value of equity in the Malaysian Capital Market over the period 2012–2106. The findings have an important implication for regulators and local standards-setting body to curtail earnings management practices to improve the quality of earnings and book value of equity to increase the investor’s confidence in general purpose financial reporting. The findings of the study contribute to the existing literature by performing a detailed empirical analysis of the value relevance of financial reporting in Malaysia, a developing country where the full set of IFRS has been implemented.