The Incremental Information Content of Financial Statements’ Signals of Jordanian Industrial Shareholding Companies

Rula Y. Hajjaj, Mamoun M. Al-Debi'e

Abstract


This study aims at examining the information content of selected financial statements signals proposed by Lev and Thiagarajan's (1993) study, and to test whether they have incremental information content above earnings, in the Jordanian market. Moreover, the contextual nature of these signals has been tested by taking into consideration the economic circumstances prevailing during the study period. The study hypothesized that these signals have incremental information content above earnings, and that this information content depends negatively and positively on the prevailing economic conditions. A sample of (86) industrial public shareholding companies listed on Amman Bourse during the period (1995-2010) was used with a total number of (485) observations. The results show that: (1) the selected financial statements signals have incremental information content above earnings, (2) the most important signals in the Jordanian financial market are as follows: Finished goods, Gross Profit, and Capital expenditures, (3) the information content of these signals depends on the prevailing economic conditions, which emphasizes the importance of the contextual analysis for fundamental analysis.

Keywords


Fundamental Signals, Fundamental Analysis, Stock Market Return, Contextual Analysis, Information Content, Earnings per share.

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