Accounting Information and Its Importance to Investors in the Libyan Stock Market

Rjaa Mohamed, H. Faraj (2017) Accounting Information and Its Importance to Investors in the Libyan Stock Market. PhD thesis, Universiti Malaysia Sarawak.

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Abstract

Annual financial reports generally provide an overview of corporations‟ business activity in both short and long terms. Accounting information contained in annual reports act as the primary means of communication between the corporations and their shareholders. It is widely expected that the information contained in those reports may be beneficial and meet the needs of the various users such as investors, creditors, financial analysts and auditors in their decision-making process. However, users are not a homogenous group and the financial information cannot equally satisfy them because they have different interest, purpose, preference and financial skills. In a developing country like Libya where alternative sources of company information is somewhat limited in quantity and quality, the role of corporate annual reports for the purpose of investment becomes much more dominant and prominent than in the more advanced and economically developed countries. This study empirically examines the usefulness of corporate annual reports to stock investors in Libya and their usefulness for investment purposes. In particular, the study attempted to know how the investors, as the primary users of company‟s financial statements, perceive the importance of accounting information disclosed in the financial reports, and on what information in these reports they most heavily rely and effect on their investment decision. Consequently, primary and secondary data was used to investigate the value relevance of accounting information in the Libyan Stock Market (LSM). The results obtained from the questionnaire revealed that corporate financial reports are useful to investors despite that they are not the most sought-after source of information influencing investors‟ decision. Libyan investors depend mainly on the pieces of advice obtained from brokers to take their decisions viii before looking at corporate annual reports. This result is due to inadequate information contained in corporate financial reports in terms of quantity and quality. Several areas of concerns in the LSM such as delay in publishing information and a lack of reliability were also suggested. For a deeper insight, a semi-structured interview with the official brokers and investment advisors was also conducted as a qualitative method. This group had abundant knowledge about and rich experience in the equity investment and the share valuation process. The results of the interview supported the questionnaire results and asserted that the accounting information disclosed in financial reports is considered an important source of information affecting investor‟s decision even though they see detailed information disclosed by companies as insufficient. From the regression analysis, the results of the FEM, which has been confirmed as the best model, showed that the price to book value (P/BV) and book value per share (BVPS) have a significant and positive effect on stock returns for all sectors in the LSM. The variables of current ratio (CR) and debt to equity ratio (D/E) have a significant and negative effect while return on assets (ROA) is not. Determining such a model will be helpful and taken as a guide to persuade investors in selecting the right option and to invest with more confidence

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