A Causality test on accounting returns and market returns: Evidence from publicly-listed companies in the Philippines from 2007 to 2012

• Main Authors: Chiu, Mark Andrew L., Jo, Elesia Mae R., Velasco, Jose Christopher E., Yang, Karen Ann L.
• Format: text
• Language: English
• Published: Animo Repository 2013
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/10955
• Institution: De La Salle University

Various studies have been conducted on the relationship between accounting earnings and stock returns due to its important implications for accountant and stock market investors. This study examined whether a causal relationship exists between accounting returns and market returns in the context of publicly-listed firms, and in each industry sector, in the Philippines. Panel data analysis and a Granger causality test were conducted on data gathered from financial statements of companies dated from 2007 to 2012. The results so far suggest that causal relationships exist in certain industries or sectors. When disregarding the subdivision of each sector, our study shows that accounting returns lead to market returns. While the results suggest that the market as a whole is not efficient, the industrial and mining & oil sectors seem to be efficient, implying that a rather substantial part of company information released to the public has already been reflected in stock prices beforehand for these sectors. Furthermore, the results of this study suggest that investors can utilize accounting returns as a basis for earning abnormal returns in the market, particularly those in the financial and services sectors.