The Relationship between the Value Relevance of Accounting Information and Stock Returns in Pakistan: A Case Study of Pre and Post IPO Performance

Abstract

This study analyzes the impact of value relevance of accounting information on stock returns of firms in the case of initial public offerings in Pakistan using the data of 92 firms conducting initial public offerings (IPOs) registered on the Pakistan Stock Exchange from 2000 to 2022. The data of all the variables has been collected from the annual published reports of firms and the PSX data stream. The study found that the variables earnings-per-share, change in earnings-per-share and book value are positively and significantly related to stock returns of firms before initial public offerings (IPOs). However, the variables net income, change in net income, and dividend per share are positively but insignificantly related to the stock returns of firms before initial public offerings. The study also found that the variables earnings-per-share and change in earnings-per-share are positively and significantly related to the stock returns of firms during IPOs. In contrast, the variables book value net income, change in net income, and dividend per share are found to be insignificant factors of stock returns of firms during IPOs. Lastly, the results also show that earnings-per-share, change in earnings-per-share, and book value are positively and significantly related to the stock returns of firms after five years of initial public offerings while the variables net income, change in net income and dividend per share are found to be insignificant factors of stock returns of firms after five years of initial public offerings. Keeping in view the outcomes, it is concluded that accounting information variables play an imperative role in influencing the stock returns of firms conducting initial public offerings in Pakistan.