How does leverage affect the value relevance? Evidence from Turkey


Ertugrul M.

SPANISH JOURNAL OF FINANCE AND ACCOUNTING-REVISTA ESPANOLA DE FINANCIACION Y CONTABILIDA, vol.50, no.2, pp.246-267, 2021 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 50 Issue: 2
  • Publication Date: 2021
  • Doi Number: 10.1080/02102412.2020.1786946
  • Title of Journal : SPANISH JOURNAL OF FINANCE AND ACCOUNTING-REVISTA ESPANOLA DE FINANCIACION Y CONTABILIDA
  • Page Numbers: pp.246-267
  • Keywords: Value relevance, leverage, capital structure, accounting information, Turkey, BOOK VALUE, ACCOUNTING INFORMATION, LINEAR REGRESSIONS, DUMMY VARIABLES, EARNINGS, IFRS, VALUATION, ADOPTION, MARKETS, EQUITY

Abstract

High-levered firms have serious concerns related to avoiding covenant violations and meeting the needs of their creditors. Accounting information of those firms should be less value relevant for market participants. Based on a sample of Turkish listed firms over 2009-2018, we analyse whether the value relevance of accounting information is significantly lower for high-levered firms. For this purpose, we group observations with no net debt and divide the rest into quintiles based on leverage levels. We conclude that the value relevance of both earnings and book value of equity is lower for the high-levered quintile than the rest. Moreover, the value relevance of earnings is moderated more than the value relevance of book value of equity for the high-levered quintile. Last, book value of equity is more dominant in the valuation of the high-levered quintile than the valuation of the rest.