The Association of Accounting-Based Altman Z -Score and PFRS 7 disclosure index to market-based coefficient of variation of stock market returns of publicly-listed companies in the Philippines: A descriptive study of accounting-based and market-based risk measures using quantitative and qualitative analyses

• Main Authors: Eroy, Gabriel, Juan, John Joseph M., Medel, Rheychel Kitkat C.
• Format: text
• Language: English
• Published: Animo Repository 2012
• Subjects: Investments; Stocks; Accounting
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/11386
• Institution: De La Salle University

Stock investment has been the primal source of wealth of many investors. Due to this, the importance of bodies of knowledge about this activity has been increasing as time passes and as complexities continue to arise. Wealth derived from stock investments comes with a price investments bear considerable amount of risk. The world has been hit by numerous financial scandals for the past decade. The whole world has witnessed the biggest scandals that can be attributed to accounting practices. Thousands of people lost the wealth they accumulated over the years in just an instant because of greed. Therefore to alleviate the effects of further damage, standards that address reporting businesses financial position and performance have been enacted and given more importance. Until today, these set of standards are continuously evaluated for improvement to ensure that it can adapt changing demands of the stakeholders, particularly the investors, for transparency. Being aware of these events, the researchers, with the intent to provide knowledge, conducted a study that relates accounting “based and market based risk measures in the Philippines. The main goal of the researchers was not only to contribute to the reservoir of knowledge about stock investments in the Philippines, but also to bridge the gap between accounting and finance and revisit the ability of accounting information to reveal risk as Peter Pope (2010) suggested. The researchers envisioned to help the stakeholders of the Philippine Stock Exchange to continually engage in the environment , where wealth creation is possible, but at the same time avoid making misleading decisions due to incomplete or false information. With Altman Z-score as accounting-based risk measure and coefficient of variation (CV) of actual stock return as market-based risk measure, the researchers concluded that there is negative and significant relationship between the two variables. This implies that the companies listed in the Philippine Stock Exchange (PSE) follows the assumptions that as the Altman Z-score value of companies is high, their financial stability is also high, resulting to a low market/investment risk. Then, with PFRS 7 disclosure index as accounting-based risk measure and CV of actual stock market return as market-based risk measure, the researchers have concluded that there is a negative and insignificant relationship between the two variables. This implies that there is still a gap between the level of PFRS 7 compliance and the market risk of listed companies in the Philippine Stock Exchange (PSE), which decreases the ability of stakeholders to evaluate effectively the risk that the companies are engaged to. As a supplement, the researchers also conducted a descriptive analysis of the level of PFRS 7 compliance of the publicly-listed companies in PSE. Whether at the company level or industry level, the researchers concluded the listed companies in the Philippine are still not 100% compliant to PFRS7.