The relationship between accounting value and economic value among commercial banks in Kenya

Abstract

Accounting information to equity investors has led to a large body of literature studying the relationship between accounting information and the stock market. In recent years, the performance evaluation criteria is more based on accounting income while accounting income is suffering from clear shortcomings and weakness because financial experts believe that accounting income is subjective and does not reflect true value of a company. The objective of this study was to determine the relationship between accounting value and economic value among commercial banks in Kenya. The study used survey research design. The population of this research consisted of all the 43 commercial banks in Kenya, from which a sample of 30 banks was utilized. The researcher utilized secondary sources to collect the data. The sources were obtained from NSE and CBK sites. Secondary sources included financial statements for a period of 5 years (2008-2012) and including internet resources, and publications. The study utilized a regression model to predict the relationship between accounting value and economic value. The findings revealed that there is a significant positive relationship between Return on Equity and Economic Value. A significant positive relationship was found between Return on Asset and Economic Value. In addition, the findings indicated a significant positive relationship between Earnings per share and Economic Value. In conclusion, in order to achieve a proper measure of economic value, Kenyan commercial banks need to integrate emphasis on Return on Equity, Return on Asset and Earnings per share as the measures for accounting. The study recommends that to achieve a proper measure of economic value, Kenyan commercial banks need to integrate emphasis on Return on Equity, Return on Asset and Earnings per share as the measures for accounting.