The role of Value Relevance of Accounting Earnings according to the explanatory ability in predicting the returns and prices of market stocks

Abstract

Objective: The research intends to investigate the role of the appropriateness of the value of accounting Earnings in predicting returns and prices of market shares by utilizing explanatory power to assess the relationship between accounting Earnings and returns and prices of market shares.

Design, Methodology, and Approach: The analytical forecasting approach has been adopted for the accounting period (2011) to (2021) for case study purposes in the Mosul Investment and Development Bank research sample, which is listed on the Iraqi Stock Exchange. (Return Model) and (Model Price) have a significant impact on the market stock's return and price forecasts, thus leading to the rationalization of investment decisions by investors or shareholder stakeholders.

Results: One of the most important findings of the research is the high explanatory power when measuring accounting profits in predicting returns and market stock prices in both measurement models. While the results of the search for the price model scale (Ohlson) showed that there is a direct and significant effect of accounting profits and market stock prices.

Research, practical and social implications: Adopting methods of measuring the explanatory capacity by financial analysts and stakeholders interested in the field of information for the economic units listed in the Iraq Stock Exchange because of their positive results in the explanatory capacity of accounting profits and giving positive indicators for predicting returns and market stock prices.

Originality/value: We provide indications about the need to use the appropriate measurement of the value of accounting profits for the purposes of developing and improving performance measurement of economic units for the purpose of encouraging investment in them.