The Role of Earnings and Book Values in Pricing Stocks: Evidence from Turkey

Asokan Anandarajan, Iftekhar Hasan, Ihsan Isik, Cornelia McCarthy

Research output: Chapter in Book/Report/Conference proceedingChapter

6 Scopus citations


In this study, we examine factors associated with equity valuation in a newly emerging market, Turkey. In the United States and other developed countries, research indicates that both earnings and book value are important predictors of equity valuation. In Turkey, earnings appears to have information content but earnings, by itself, appears to be declining in importance over time. Book value adjusted for inflation has a stronger association with equity values. In the inflationary and risky environment of Turkey, where future value of earnings is quite uncertain, investors may be paying less attention to earnings and more attention to book values. With respect to the role of book value there are competing explanations. While some researchers conclude that it is only important because it is a control for scale differences, (Barth & Kallapur 1996) others conclude that it is relevant as a proxy for normal earnings (Ohlson, 1995). Still others conclude that it is only relevant in the valuation of loss making and generally unsuccessful firms (Berger, Ofek & Swary 1996; urgstahler & Dichev, 1997). The additional contribution of this study is to show that book value is also important as a value proxy for firms operating in environments where there is rampant inflation. Our study also indicates that, overall, earnings and inflation-adjusted book values combined virtually explain almost 75% of the variation in equity prices in Turkey.

Original languageEnglish (US)
Title of host publicationAdvances in International Accounting
EditorsTimothy Sale, Stephen Salter, David Sharp
Number of pages31
StatePublished - 2006

Publication series

NameAdvances in International Accounting
ISSN (Print)0897-3660

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance (miscellaneous)


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