Value Relevance of Accounting Information: A Case Study of Listed Commercial Banks

This study examines value relevance of commercial banks intangible assets represented by P/B ratio and cash flows from operations in India. While banks are required to provide statements of cash flows under Generally Accepted Accounting Principles (GAAP), it is argued that cash flow information is not useful for the banking industry. Using a sample of banks from 2004 to 2016, it was found that banks cash flows from operations activities are not value relevant to the share price. Applying a modified Ohlson s (1995) valuation model, this study document that banks intangible assets (P/B ratio) have a significant positive relationship with share prices. Furthermore, it was evidenced that the banks cash flows are not a good predictor determinant of the share price. Taken together, these findings suggest that banks intangible assets represented by P/B ratio provide useful information to investors in valuing banks equity

Keywords:

Value relevance , Intangible Assets , Operating cash flow , Commercial banks