Value Relevance of Different Earnings Components: Evidence from Syrian Private Banks

Abstract

Purpose: This research explores the value relevance of various earnings components in the income statements of Syrian private banks and their impact on investor decision-making. Utilizing data from banks listed on the Damascus Stock Exchange from 2010 to 2022, the study investigates the relationship between share prices and key earnings components to enhance understanding of the value relevance of accounting metrics.
Study design/methodology/approach: A correlation analysis of earnings items identified three key components for modeling: income from interest and fees, unrealized gains/losses from foreign currency revaluation, and operating expenses. A pooled Ordinary Least Squares (OLS) regression model was employed to evaluate their influence on stock prices.
Sample and data: Annual data were manually extracted from the financial reports of 11 conventional private banks listed on the Damascus Stock Exchange for the period from 2010 to 2022.
Results: The OLS regression findings indicate that income from interest and fees is significantly more relevant to investors than overall earnings figures. This suggests that investors should focus on analyzing interest-related income in their strategies. While unrealized gains/losses and operating expenses are also relevant, they account for less variation than income from interest and fees, highlighting the need for regulatory improvements in income reporting.
Originality/ value: This is the first empirical study examining the value relevance of different earnings components within the Syrian banking sector.
Research limitations/implications: The study is limited to 11 banks on the Damascus Stock Exchange, which may affect the generalizability of the findings.