Share prices and accounting variables: a hierarchical Bayesian analysis

Abstract

Purpose

The purpose of this paper is to examine the relevance of accounting variables to explain the evolution of a company's share price; and more specifically, we analyse the influence of cash flow and book value on the evolution of the share price, taking into account certain covariates which have traditionally been regarded as helping explain this effect.

Design/methodology/approach

A hierarchical Bayesian model is used to analyse the relevance of the accounting figures considered by the markets.

Findings

The empirical results obtained show that the firm size and the speed of asset turnover are a company's most relevant features, which is indirectly consistent with the theory of company life cycles.

Originality/value

The empirical results obtained are of value to support the validity of company life cycle theory.

Citation

Gallizo, J.L. and Salvador, M. (2006), "Share prices and accounting variables: a hierarchical Bayesian analysis", Review of Accounting and Finance, Vol. 5 No. 3, pp. 268-278. https://doi.org/10.1108/14757700610686813