Impact of Investment Growth on the Relationship between Earnings and Equity Value in Different Levels of Profitability

Abstract

This research investigates the impact of investment growth on the relationship between earnings and equity value in different levels of profitability. The research sample takes 60 companies accepted in the Tehran Stock Exchange in the period 2001-2010. Investment growth has been calculated by actual book values of firms’ equities. To test the hypotheses, univariate and multiple regression analyses were employed, using Fama and Macbeth (1972) two steps cross-sectional regression method. The results show that in different levels of profitability, there is a positive and significant relationship between equity earnings and equity value. This confirms the importance and informative aspects of accounting variable of earnings. Also, the results show that investment growth in companies with high level of profitability has positive and significant effect on the relationship between equity earnings and equity value.

Keywords

• investment growth
• earnings
• equity value
• profitability
• equity book value