Fonou-Dombeu, Nyanine Chuele; Nomlala, Bomi Cy il; Nyide, Celani John
A icle
In es iga ing he e ec o in es o sen imen on s ock
e u n sensi i i y o undamen al ac o s: case o JSE lis ed
companies
Cogen Business & Managemen
P o ided in Coope a ion wi h:
Taylo & F ancis G oup
Sugges ed Ci a ion: Fonou-Dombeu, Nyanine Chuele; Nomlala, Bomi Cy il; Nyide, Celani John (2024) :
In es iga ing he e ec o in es o sen imen on s ock e u n sensi i i y o undamen al ac o s:
case o JSE lis ed companies, Cogen Business & Managemen , ISSN 2331-1975, Taylo & F ancis,
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In es iga ing he effec o in es o sen imen on
s ock e u n sensi i i y o undamen al ac o s:
case o JSE lis ed companies
Nyanine Chuele Fonou-Dombeu, Bomi Cy il Nomlala & Celani John Nyide
To ci e his a icle: Nyanine Chuele Fonou-Dombeu, Bomi Cy il Nomlala & Celani John Nyide
(2024) In es iga ing he effec o in es o sen imen on s ock e u n sensi i i y o undamen al
ac o s: case o JSE lis ed companies, Cogen Business & Managemen , 11:1, 2353846, DOI:
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2024, VoL. 11, no. 1 , 2353846
In es iga ing he e ec o in es o sen imen on s ock e u n
sensi i i y o undamen al ac o s: case o JSE lis ed companies
nyanine chuele Fonou-Dombeua , Bomi cy il nomlalab and celani John nyidec
aLec u e , Depa men o Finance and in o ma ion Managemen , Du ban uni e si y o echnology, Du ban, sou h a ica;
bassocia e p o esso , school o accoun ing, economics and Finance, uni e si y o KwaZulu na al, Du ban, sou h a ica;
csenio Lec u e , Depa men o Finance and in o ma ion Managemen , Du ban uni e si y o echnology, Du ban, sou h a ica
ABSTRACT
his s udy examines he associa ion be ween a i m’s undamen al ac o s and s ock
e u ns as well as how in es o sen imen in luences he associa ion be ween hese
a iables. he undamen al ac o s analyzed include accoun ing a iables (ea nings
yields, change in p o i abili y, and capi al in es men ) and ea nings quali y measu es.
in es o sen imen is measu ed using he sou h A ican consume con idence index. A
sample o 1 386 i m-yea obse a ions om he companies lis ed on he Johannesbu g
s ock exchange (Jse) be ween 1990 and 2022 was used. he esul s show ha
undamen al ac o s a e ela ed o s ock e u ns, excep o measu es o ea nings
quali y. Al hough ea nings yields and capi al in es men s cause a ia ion in s ock
e u ns, hei e ec s on s ock e u ns a e in luenced by o he a iables associa ed wi h
s ock e u ns. in addi ion, in es o sen imen a ec s he ela ionship be ween
undamen al ac o s and s ock e u ns, sugges ing ha sen imen in luences he
ou come o he capi al ma ke and he way in es o s p ocess undamen al in o ma ion.
p o i abili y seems o be mo e ela ed o s ock e u ns han o he undamen al a iables.
his s udy sheds ligh on how sen imen in e ac s wi h a se o undamen al ac o s
and hei sensi i i y o s ock e u ns and highligh s he impo an ole o in es o
sen imen and accoun ing in o ma ion in he capi al ma ke .
1. In oduc ion and backg ound
adi ional inance heo y assumes ha he capi al ma ke is e icien , as such in es o s a e a ional and
use he in o ma ion a ailable in he ma ke o make esou ce alloca ion decisions. howe e , beha io al
inance heo y posi s ha in es o s’ psychological s a es (in es o sen imen ) in luence hei in es men
decisions. consequen ly, he mo emen o s ock p ices is no only a ec ed by a i m’s speci ic in o ma-
ion ( undamen al in o ma ion) and ma ke wide in o ma ion bu also by in es o sen imen . in es o
sen imen is desc ibed as in es o s’ expec a ions ega ding he e u n and isk ela ed o in es men
(ha i ha & ishad, 2020) and/o in es o s’ psychological s a e o mind (op imism o pessimism), which
guide hei in es men decisions (pa k, 2015). in es o sen imen may, he e o e, be unde s ood as he
mo emen o secu i y p ices no a ec ed by undamen al in o ma ion. since he eme gence o beha -
io al heo y, esea che s ha e in es iga ed he associa ion be ween in es o sen imen and ou comes o
he capi al ma ke , such as sha e p ices and s ock e u ns, and ound mixed and inconclusi e esul s.
in one hand some s udies (chen, 2008; ha i ha & ishad, 2020; seok e al., 2019) epo a posi i e
associa ion be ween hese a iables. in o he wo ds, hese s udies e ealed ha when in es o s a e
© 2024 he au ho (s). Published by in o ma uK Limi ed, ading as aylo & F ancis g oup
CONTACT nyanine Chuele Fonou-Dombeu [email protected] Depa men o Finance and in o ma ion Managemen , Du ban
uni e si y o echnology, Du ban, sou h a ica.
h ps://doi.o g/10.1080/23311975.2024.2353846
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pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. he e ms on which his a icle has been
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ARTICLE HISTORY
ecei ed 6 Feb ua y 2024
e ised 1 May 2024
Accep ed 6 May 2024
KEYWORDS
sen imen ; accoun ing
in o ma ion; acc ual
quali y; e u ns; Jse lis ed
companies
REVIEWING EDITOR
collins n im; uni e si y o
sou hamp on;
uni ed Kingdom o g ea
B i ain and no he n
i eland
JEL CLASSIFICATION
g10; g14; g41; M40; M41
SUBJECTS
cogni i e psychology;
Finance, Business,
Managemen and
Accoun ing
2 n. c. Fonou-DoMBeu e Al.
op imis ic, hei sen imen is high, which leads o an inc ease in sha e p ices. on he o he hand, o he
s udies (Bake e al., 2007) epo a nega i e associa ion be ween sha e p ices and in es o sen imen .
hese au ho s a gue ha he ela ionship be ween sen imen and sha e p ices/ e u ns is condi ioned by
he ype o s ock o he i m’s cha ac e is ics.
since bo h i m-speci ic in o ma ion and in es o sen imen may a ec s ock p ices, only a ew s udies
(Mian & sanka agu uswamy, 2012) ha e a emp ed o link in es o sen imen o i m- speci ic in o ma ion
and sha e p ices. Fo ins ance, Mian and sanka agu uswamy (2012) ind ha in es o sen imen has
di ec and indi ec impac s on sha e p ices sensi i i y o ea nings news.
in o ma ion abou a i m’s ea nings may a ec in es o sen imen (seok e al., 2019). in addi ion, i ms
ha exceed analys s’ ea nings o ecas s expe ience a sudden inc ease in s ock p ices (chan e al., 2007);
o such i ms, in es o s a e op imis ic; which may in u n in luence hei decisions. in con as , i ms ha
all sho o analys s’ ea nings o ecas s expe ience a dec ease in s ock p ice (chan e al., 2007), which
leads o in es o pessimism. he e o e, he ela ionship be ween i m’s speci ic in o ma ion and s ock
e u ns may be condi ioned by in es o op imism o pessimism s a e o mind.
his s udy ex ends p e ious wo k by i s examining he ela ionship be ween i ms’ undamen al ac-
o s and s ock e u ns. he ea e , we examine whe he in es o sen imen a ec s he ela ionship
be ween i m undamen al in o ma ion and s ock e u ns in sou h A ica, using Jse da a. We desc ibe
undamen al in o ma ion as a iables ela ed o a i m’s speci ic in o ma ion ha may lead o changes in
s ock p ices, including accoun ing a iables and ea nings quali y measu es.
he accoun ing a iables used a e ea nings yield, change in p o i abili y, and capi al in es men . hese
a iables a e associa ed wi h s ock e u ns (chen & Zhang, 2007). chen and Zhang (2007), a gue ha
ea nings yields, change in p o i abili y, and capi al in es men a e ela ed o he expec ed u u e cash
low o a i m and a e, he e o e co ela ed wi h s ock e u ns.
We also use ea nings quali y measu es as a p oxy o a i m’s undamen al in o ma ion because ea n-
ings quali y is a good measu e o a i m’s pe o mance (Dechow e al., 2010; Fonou-Dombeu e al., 2022).
in es o s use i o o ecas u u e cash lows, which subsequen ly a ec s ock e u ns. he measu e o
ea nings quali y used in his s udy is acc ual quali y. We speci ically ocus on acc ual quali y o o he
ollowing easons. Fi s , acc ual is a good measu e o ea nings quali y and p edic ea nings be e han
o o he measu es o ea nings quali y (chan e al., 2007; pe o i & Wagenho e , 2014).
second, acc ual is he “p ima y mechanism h ough which accoun an s seek o make inancial s a e-
men s use ul” (la son e al., 2018).
Finally, he associa ion be ween acc uals and s ock e u ns ha e p o ided mixed esul s. sloan (1996)
ound ha i ms wi h low acc uals ha e highe subsequen s ock e u ns. chan e al. (2007) also docu-
men ed ha acc uals a e nega i ely ela ed o u u e s ock e u ns. his nega i e associa ion is explained
by he ac ha acc uals a e suscep ible o manipula ion, and a high acc ual could signi y low ea nings
quali y, which subsequen ly leads o low e u ns. howe e , hi slei e e al. (2009) ind a posi i e associa-
ion be ween acc uals and s ock e u ns. his sugges s ha he ela ionship be ween acc uals and s ock
e u ns a e no ye conclusi e, and he ou come may depend on he cha ac e is ics o he i ms o he
capi al ma ke in which he i m ope a es. in addi ion, p io s udies ha linked acc uals o s ock e u ns
emphasized ha acc uals e lec manage s’ manipula ion o ea nings, his is mo e obse ed o i ms wi h
high acc uals (chan e al., 2007; Dechow e al., 2010). he ela ionship be ween acc uals and s ock e u ns
may di e in sou h A ica’s capi al ma ke . in ac , Fonou-Dombeu e al. (2023) showed ha he lis ed
i ms in sou h A ica display a low le el o acc uals, which is an indica ion o high ea nings quali y.
he e o e, he ques ion is: i ea nings is o highe quali y in sou h A ica’s lis ed i ms, does ea nings
quali y lead o an inc ease in s ock e u ns in sou h A ica?
Fu he mo e, we link in es o sen imen o he ela ionship be ween i m undamen al in o ma-
ion (accoun ing a iables and measu es o ea nings quali y) and s ock e u ns because p io s udies
ound ha accoun ing a iables may cause a ia ions in s ock p ices (chen & Zhang, 2007), and ha
in es o beha io may also a ec s ock p ices/ e u ns (Bake & Wu gle , 2006; Xa ie & Machado,
2017). hus, in es o sen imen may play a ole in he accoun ing a iable-s ock e u n ela ionship.
he e o e, he ques ions a e as ollows: how does sen imen in luence he associa ion be ween
accoun ing a iables and s ock e u ns? Do accoun ing a iables and sen imen join ly in luence
s ock e u ns?
cogen Business & MAnAgeMen 3
We also conjec u e ha sen imen may in luence he ela ionship be ween he measu e o ea nings
quali y and s ock e u ns since chen (2008) epo ed ha unce ain y in luences in es o judgemen .
in ac , he measu e o ea nings quali y may be used as a p oxy o in o ma ion unce ain y because
i e lec s a i m’s ue ope a ional ac i i ies (Dechow e al., 2010; Fonou-Dombeu e al., 2023) and
i ms wi h high ea nings quali y a e less ola ile han i ms wi h low ea nings quali y (Fonou-Dombeu
e al., 2022; ajgopal & enka achalam, 2011). co olla y, i ms wi h high ea nings quali y will ha e a
s able u u e cash low compa ed o i ms wi h low ea nings quali y. in es o s will be op imis ic abou
i ms wi h high ea nings quali y as i will be easie o o ecas he u u e cash low o hese i ms.
hus, in es o sen imen may in luence he ela ionship be ween ea nings quali y and s ock e u ns.
he e o e, he ques ions a e: how does in es o sen imen a ec he associa ion be ween ea nings
quali y measu e and s ock e u ns? Do sen imen and ea nings quali y measu e join ly in luence s ock
e u ns?
Fu he mo e, since he eme gence o beha io al inance, in es o sen imen has been widely s udied
in he li e a u e, especially in de eloped na ions, whe e such s udies a e in ad anced s ages (ha i ha &
ishad, 2020). howe e , in de eloping na ions, s udies on in es o sen imen a e a an ea ly s age (ha i ha
& ishad, 2020). speci ically, in sou h A ica, he e is a sca ci y o s udies ha ha e a emp ed o link
sen imen wi h i m undamen al in o ma ion. only a ew sou h A ican s udies on in es o sen imen
(Dalika & see ha am, 2015; Mugu o e al., 2022; upande e al., 2019), ha e ocused on he e ec o
sen imen on sha e p ices and/o s ock e u ns. speci ically, hese s udies sough o examine he e ec
o sen imen a he ma ke le el and no a he i m’s le el.
his s udy con ibu es o he li e a u e by shedding ligh on how a se o undamen al ac o s in lu-
ences s ock e u ns in Jse-lis ed companies. he use o he ull se o i ms’ undamen al in o ma ion in
his s udy p o ides comp ehensi e and di e se in o ma ion abou s ock e u ns ha is concealed when
one uses a single a iable, accoun ing a iables, o measu e o ea nings quali y sepa a ely. he indings
also shed ligh on which ac o con ibu es mo e o has g ea e explana o y powe o he change in
s ock e u ns in sou h A ica’s capi al ma ke . in addi ion, his s udy answe s he ques ion o whe he he
ela ionship be ween a i m’s undamen al in o ma ion and s ock e u ns depends on in es o beha io .
2. Li e a u e e iew
i is well documen ed in he li e a u e ha changes in secu i ies p ices a e in luenced by ma ke in o -
ma ion, i m in o ma ion, and in es o sen imen . in he pas , in es o s’ a ionalism was conside ed he
only explana ion o he change in sha e p ice. in es o s’ decisions a e based on he a ailable in o ma-
ion in he ma ke . his belie is s ongly suppo ed by adi ional inance heo y, which assumes ma ke
e iciency and in es o s’ a ionali y. howe e , ecen beha io al inance heo y a gues ha in es o s a e
no always a ional. hei subjec i e belie s and psychological s a es o mind also in luence he mo e-
men o sha e p ices. he psychological s a e o mind, op imism, o pessimism, o in es o s is measu ed
by in es o sen imen . De long e al. (1990) demons a e how i a ional ade s in luence he inancial
ma ke s.
se e al s udies ha e in es iga ed whe he in es o s’ psychological s a e o mind is ela ed o s ock
e u ns (Bake & Wu gle , 2006; B own & cli , 2005; chen, 2008; gao & Yang, 2017; ha i ha & ishad, 2020).
Bake and Wu gle (2006) ind ha in es o sen imen is in e sely associa ed wi h s ock e u n. he
au ho s epo ha in es o sen imen is low o i ms wi h low p o i abili y, high ea nings ola ili y,
non-paying di idends, and young and ma u e i ms. Fo hese i ms, he subsequen e u ns will be high.
in addi ion, Bake and Wu gle (2006) a gue ha i i is di icul o de e mine a i m’s alue, in es o s will
be pessimis ic, and hence, hei sen imen will be low. he sha e p ice o such i ms is high because o
misp icing, which subsequen ly leads o low e u ns.
in an a emp o ind wha can educe secu i y misp icing due o in es o sen imen , co nell e al.
(2017) epo ha secu i y misp icing is educed o i ms wi h high accoun ing in o ma ion.
in addi ion, co nell e al. (2017) a gue ha in es o sen imen has li le impac on he sha e p ices o
i ms ha display highe accoun ing in o ma ion. his is because, he sha e p ices a e inco ec ly de e -
mined i he accoun ing in o ma ion is o low quali y. his misp icing leads o empo a ily high e u ns.
he e o e, he quali y o a i m’s inancial epo s is an impo an ac o in he capi al ma ke . Fu he mo e,
4 n. c. Fonou-DoMBeu e Al.
he ea nings igu e is an i em in he inancial epo s ha is used as a p ima y measu e o accoun ing
in o ma ion (Dechow e al., 2010). Be o e he eme gence o beha io al inance, i was assumed ha he
ma ke was e icien and ha accoun ing in o ma ion was he main ya ds ick used by in es o s o make
decisions. a ional in es o s assumes ha accoun ing in o ma ion is ully e lec ed in secu i ies p ices
(Mian & sanka agu uswamy, 2012).
As many a iables a e used as p oxies o accoun ing in o ma ion, se e al s udies (chan e al., 2007;
chen & Zhang, 2007; pe o i & Wagenho e , 2014; shao e al., 2021) ha e examined how hese a iables
in luence s ock p ices. Fo ins ance, chen and Zhang (2007) epo ed ha ea nings, p o i abili y, and
capi al in es men a e associa ed wi h s ock e u ns while chan e al. (2007) ound ha ea nings quali y
has g ea p edic i e powe o s ock e u ns. Ano he s udy by ajgopal and enka achalam (2011) epo
ha de e io a ion o ea nings quali y is ela ed o an inc ease in he ola ili y o s ock e u ns. simila ly,
Fonou-Dombeu e al. (2022) ind ha measu es o ea nings quali y a e associa ed wi h a company’s
pe o mance and s ock e u ns ola ili y.
in examining he e ec o acc uals on s ock e u ns a he agg ega e le el, hi slei e e al. (2009) eached
di e en indings om hose o p e ious s udies. in ac , in con as o he s udy by chan e al. (2007), which
epo ed ha acc uals a e nega i ely ela ed o s ock e u ns, hi slei e e al. (2009) ound ha acc uals a e
posi i ely ela ed o s ock e u ns a he agg ega e and sec o le els. he esul s di e ed depending o he
sec o . hese mixed esul s may imply ha when i comes o examining he e ec o acc uals on s ock
e u ns, he esul s canno be gene alized because capi al ma ke s a e di e en in e ms o e iciency.
Fu he mo e, au ho s ha e linked in es o sen imen o accoun ing in o ma ion. in ac , chen (2008)
epo ed ha sen imen in luence “in es o judgemen o u u e cash low and hei isk p e e ence.” he
au ho a gues ha some ea nings componen s, such as capi al expendi u es, p oduce u u e cash lows
wi h high o low le els o unce ain y. he s udy e ealed ha he e ec o sen imen on in es o s’
judgemen depends on he ype o cash low (cash low wi h high unce ain y s. cash low wi h low
unce ain y). in addi ion, he s udy inds ha he e ec o sen imen on expec ed cash low is opposi e
o i s e ec on isk p e e ence.
Mi anda e al. (2018) epo ha in es o sen imen is nega i ely ela ed o ea nings managemen . he
au ho s a gue ha his nega i e associa ion could be a ibu e o inancial analys moni o ing. Fi ms ha a e
moni o ed by inancial analys s ha e a lowe p opensi y o manipula e inancial epo s han hose ha do no .
Mian and sanka agu uswamy (2012) examine whe he in es o sen imen in luences s ock p ices eac-
ions o accoun ing in o ma ion measu ed by he ea nings esponse coe icien . he s udy e ealed ha
good news abou a i m’s epo ed ea nings is quickly inco po a ed in o s ock p ices when in es o s a e
op imis ic (high-sen imen pe iod) han when hey a e pessimis ic (low-sen imen pe iod). he s udy con-
cluded ha in es o op imism o pessimism s a es o mind con ibu e o secu i y misp icing.
Ano he s udy by seok e al. (2019) linked in es o sen imen o p ice sensi i i y o ea nings announce-
men s and ound ha in a high-sen imen pe iod, good news abou a i m is ully e lec ed in s ock
p ices. howe e , when in es o s a e pessimis ic (low-sen imen ) abou a speci ic i m, posi i e news
announcemen s abou ha i m do no au oma ically change hei pe cep ion o sen imen abou ha
i m. howe e , nega i e news announcemen s lead o a sudden dec ease in he sha e p ices o such
i ms. his inding could sugges ha only posi i e ea nings news may change in es o s’ pe cep ions o
judgemen abou a s ock.
in ligh o he abo e, he li e a u e is no conclusi e abou he e ec o sen imen on a i m’s speci ic
in o ma ion and s ock p ice/ e u n ela ionship. Fu he mo e, none o he abo e s udies ha e conside ed
whe he sen imen a ec s he ela ionship be ween a ull se o accoun ing in o ma ion (measu ed om
he cash low pe spec i e) and s ock e u ns.
3. Me hodology
3.1. Sample and da a
3.1.1. Sample
he ini ial sample comp ised non- inancial companies lis ed on he Jse. he sample pe iod spans om
1990 o 2022. he e o e, non- inancial companies no lis ed on he Jse o e he sample pe iod we e
cogen Business & MAnAgeMen 5
excluded. in o de o a oid dele ing oo many companies, we did no equi e all da a o each company
o e he 32-yea pe iod. As long as a company was lis ed on Jse o he 32-yea pe iod, i was included
in he sample. his esul ed in a inal sample consis ing o 1 386 i m-yea obse a ions collec ed om
42 Jse-lis ed companies. su i o ship bias is unlikely o play a majo ole in he analysis since he da a
equi emen s cons ain he sample o long li e and s able companies.
3.1.2. Da a
As discussed abo e, he da a o his s udy we e collec ed o 32-yea pe iod, om 1990 o 2022. he da a
a e seconda y in na u e and we e ob ained om di e en sou ces. Da a o compu ing accoun ing a iables
and ea nings quali y we e ex ac ed om he inancial s a emen s o he companies included in he sam-
ple. he inancial s a emen s o hese companies we e ob ained om he i ss esea ch Domain and ana-
lyzed o ex ac ele an da a. Accoun ing da a e ie ed om he inancial s a emen s o sampled i ms
include e enues, p ope y, plan and equipmen , cash and cash equi alen , o al asse s, o al equi y, and
o al liabili ies. sha e p ice da a employed o calcula e s ock e u ns we e also ob ained om he i ss
esea ch Domain.
he da a o in es o sen imen we e collec ed om he Bu eau o economic esea ch websi e,
whe eas he da a o o he a iables (mac oeconomic a iables) we e sou ced om he sou h A ica
ese e Bank (sA s) websi e.
De ails ega ding he a iables and da a sou ces, and a iables desc ip ion a e p o ided in Appendix.
A ho ough explana ion on how he main a iables o he s udy a e measu ed and compu ed is dis-
cussed in he sec ion o ollow.
3.2. Va iables and measu emen s
he main a iables in his s udy a e i ms’ undamen al ac o s, including accoun ing a iables, measu es
o ea nings quali y, and in es o sen imen s. he measu emen s o hese a iables a e p esen ed below.
3.2.1. Accoun ing a iables
he selec ion o accoun ing a iables was guided by he li e a u e. Based on chen and Zhang (2007), a
numbe o accoun ing a iables including ea nings yield, change in p o i abili y, and capi al in es men
we e adop ed and used in his s udy. chen and Zhang (2007) epo ed ha hese a iables a e ela ed
o cu en and u u e cash lows. he e o e, hey con ibu e o he c ea ion o alue o he i m and
consequen ly in luence s ock e u ns. chen and Zhang (2007) u he demons a e ha g ow h oppo u-
ni ies and discoun a es a e ela ed o s ock e u ns. howe e , hese wo a iables (g ow h oppo uni y
and discoun a e) a e no included in his s udy because hey a e associa ed wi h he isk and ex e nal
en i onmen o he i m. he ocus o his s udy is no on isk p e e ence bu on in e nal ac o s linked
o he accoun ing p ocess ha may a ec he mo emen o he sha e p ice.
like in chen and Zhang (2007), ea nings yield is compu ed as ea nings di ided by book alue o equi y,
change in p o i abili y is p oxied by he change in e u n on equi y, e u n on equi y is compu ed as ea n-
ings di ided by book alue o equi y, and capi al in es men is he change in he book alue o equi y.
3.2.2. Measu es o ea nings quali y
Acc ual quali y, speci ically abno mal acc ual, is used as a measu e o ea nings quali y in his s udy.
Acco ding o la son e al. (2018) “acc ual is he p ima y mechanism h ough which accoun an s seek
o make he inancial s a emen s use ul.” Acc ual quali y is documen ed as a good measu e o ea nings
quali y which is use ul o de e mining a i m’s equi y alue (chan e al., 2007; pe o i & Wagenho e ,
2014). in addi ion, chan e al. (2007) demons a e ha acc uals p edic ea nings be e han o he mea-
su es o ea nings quali y. Acc ual quali y, speci ically abno mal acc ual, can also be used o gauge he
quali y o a i m’s epo ed ea nings, which could e lec he ue ope a ional ac i i y o he i m o an
illus a ion o ea nings manipula ion. Abno mal acc uals ep esen he p opo ion o acc uals ha a e
suscep ible o ea nings manipula ion (chan e al., 2007; Kang e al., 2010). A low le el o abno mal acc u-
als indica es ha ea nings a e o highe quali y (Dechow e al., 2010).
6 n. c. Fonou-DoMBeu e Al.
As in Fonou-Dombeu e al. (2023) acc ual quali y o each i m is de ined as he di e ence be ween
a i m’s o al and no mal acc uals, using eq. (1).
ACCRQ
TACCR
ASSE NACCR
i
i
i
i
,
,
,
,
=
−
−1
(1)
whe e
ACCRQi
, is acc ual quali y, TACCR
ASSE
i
i
,
,−1
o al acc ual scaled by
ASSE
i ,−
1
,
ASSEi
, o al asse s, and
NACCRi
,
no mal acc ual.
i
and a e he i m and yea , espec i ely.
TACCR
ASSE
i
i
,
,−1
and
NACCRi
, we e compu ed using eqs. (2) and (3), espec i ely.
TACCR
ASSE ASSE
CREV
ASSE
i
i i
i
i
,
,,
,
,−−
= +
+
1
01
1
2
1
ββ β
−− −
+
++
1
3
1
4
β βµ
PPEQ
ASSE ROA
i
i
i
,
,
,,
i (2)
NACCR
ASSE
CREV
ASSE
i
i
i
i
,
,
,
,
=
+
−−
ββ
1
1
2
1
1++
−
β
3
1
PPEQ
ASSE
i
i
,
,
(3)
whe e
CREVi
, is he change in e enue,
PPEQi
, is p ope y, plan , and equipmen and he emaining
symbols a e he same as in eq. (1).
As an al e na i e measu e o ea nings quali y, his s udy also used a comp ehensi e measu e o
acc ual (coMpAQ) de eloped by la son e al. (2018). la son e al. (2018) a gued ha he coMpAQ is an
e ec i e measu e o acc ual as compa ed o exis ing acc ual models. Fu he mo e, he coMpAQ add esses
some o he challenges iden i ied in exis ing models (la son e al., 2018). he coMpAQ is compu ed as
he change in sha eholde s’ equi y minus he change in cash and cash equi alen s.
3.2.3. Measu emen o in es o sen imen
in es o sen imen is gene ally measu ed using ei he a su ey-based o he ma ke -based measu es.
su eys-based measu es include p oxies such as he consume con idence index, whe eas ma ke -based
measu es include a se o a iables such as u no e , equi y sha e a io, di idend p emium, and closed-end
unds discoun a e.
each app oach (su ey o ma ke -based) has ad an ages and disad an ages.
Fo ins ance, su ey-based-measu es ha e been c i icized o no ep esen ing he exac and o e all
popula ion because su eys a e gene ally based on a limi ed sample size; su eys also su e om in e -
iew and acquiescence biases (Mugo o e al., 2019; Bake & Wu gle , 2007). howe e , i has been a gued
ha su eys a e no dependen on complex inancial heo ies and e lec he psychologic s a e o in es-
o s (Mugo o e al., 2019).
simila ly, ma ke -based measu es ha e limi a ions. hey inco po a ed idiosync a ic noise. hey a e
based on he es ima ion o a se o possible a iables o measu e sen imen , and he e a e disag ee-
men s and no cla i y on which a iables bes measu e sen imen .
since in es o sen imen is an abs ac concep and he e is no commonly ag eed measu e o sen imen
in he li e a u e (Dalika & see ha am, 2015; Bake & Wu gle , 2006), we selec ed su ey-based measu es o
p oxy o in es o sen imen in his s udy. his choice was guided by p io s udies (Duong e al., 2017;
simpson, 2013; Wang, 2018) and was cons ained by he a ailabili y o da a. speci ically, he sou h A ican
consume con idence index, also called he Fi s na ional Bank/Bu eau o economic esea ch consume
con idence index (FnB/Be cci), was used o measu e in es o sen imen in his s udy. he FnB/Be cci
da a we e collec ed om he Bu eau o economic esea ch (Be ) websi e and a e a ailable on a qua e ly
basis. Because he o he da a we e collec ed annually, o ensu e ha all he da a had he same equency,
cogen Business & MAnAgeMen 7
we compu ed he annual FnB/Be cci. Fo each yea , he FnB/Be cci was compu ed by a e aging he
qua e ly alues. his p ocedu e was also used by simpson (2013) and Duong e al. (2017), who used
mon hly da a o gene a e qua e ly da a by a e aging mon hly equencies.
3.3. Reg ession models
o examine whe he in es o sen imen a ec s he ela ionship be ween undamen al in o ma ion
and s ock e u ns, we i s es he associa ion be ween undamen al in o ma ion (accoun ing a i-
ables and measu e o ea nings quali y) and s ock e u ns o p o ide up- o-da e e idence o he e ec
o bo h accoun ing a iables and he measu e o ea nings quali y on s ock e u ns. As explained
ea lie , he use o bo h accoun ing a iables and ea nings quali y measu es p o ides a comp essi e
e ec o undamen al in o ma ion on s ock e u ns, which can be concealed when using indi idual
a iables.
We hen examine he ole o in es o sen imen in he ela ionship be ween undamen al in o ma ion
and s ock e u ns.
3.3.1. Rela ion be ween i m’s undamen al in o ma ion and s ock e u n
he undamen al ac o s used in his s udy include a se o accoun ing a iables and ea nings quali y
measu es.
3.3.1.1. Rela ion be ween accoun ing a iables and s ock e u n. o examine he ela ionship be ween
accoun ing a iables and s ock e u ns, we use equa ion (4).
ou app oach is based on he wo k o chen and Zhang (2007). chen and Zhang (2007) iden i y he
ollowing accoun ing a iables ha may be ela ed o s ock e u ns: ea nings yields, p o i abili y mea-
su ed by e u n on equi y, capi al in es men , g ow h oppo uni y and discoun a e. Following chen and
Zhang (2007), we es ima e s ock e u ns as a unc ion o accoun ing a iables (ea nings yield, change in
e u n on equi y, and capi al in es men ), as in eq. (4). howe e , we did no include g ow h oppo uni y
and discoun a e in he model because hese wo a iables a e ela ed o he i m’s ex e nal en i on-
men (chen & Zhang, 2007).
RETU EARY CPROFI CAPI CONV
i i i i i
, , ,, ,
+ +
=++ ++
1 01 2 3 4
ββ β β β µ
i11 (4)
whe e
RETUi
, is he annual s ock e u ns;
EARYi
, ea nings yield;
CPROFIi
, is he change in p o i abili y,
compu ed as he change in e u n on equi y mul iplied by he book alue o equi y;
CAPIi
, is capi al
in es men compu ed as he change in he book alue o equi y;
β
is he eg ession coe icien . All
independen a iables a e scaled by he ma ke alue o equi y.
We i s es ima e eq. (4) wi hou con ol a iables as in chen and Zhang (2007). he ea e , we es i-
ma e eq. (4) wi h con ol a iables epo ed in p e ious s udies, such as Dang e al. (2017), o be p edic-
o s o s ock e u ns. he con ol a iables a e i m size, le e age, and he ma ke - o-book a io. Fi m size
is compu ed as he loga i hm o he ma ke alue o equi y, le e age as deb di ided by o al equi y and
he ma ke - o-book alue as he book alue o equi y di ided by he ma ke alue o equi y.
3.3.1.2. Rela ion be ween measu es o ea nings quali y and s ock e u n. Fu he mo e, we conside
ea nings quali y measu es as ano he undamen al ac o ha may explain s ock e u ns in sou h A ica.
speci ically, acc ual quali y is used o measu e ea nings quali y. equa ion (5) is used o es he ela ionship
be ween ea nings quali y measu e and s ock e u ns.
RETU MEQ CONV
i i i i
, , ,,
+ +
=++ +
101 2 1
ββ β µ
(5)
whe e MeQ is a measu e o ea nings quali y and
CONVi
, a e con ol a iables, including i m size, le e -
age, and he ma ke - o-book a io. he emaining symbols a e de ined by eq. (4).
14 n. c. Fonou-DoMBeu e Al.
panel A o able 6 epo s he esul s o es ima ing eq. (7) using Acc Q as a measu e o ea nings
quali y. As shown in panel A o able 6, he coe icien o Acc Q is posi i e and non-signi ican , he
coe icien o ins is nega i e and signi ican , and he coe icien o he in e ac ion be ween acc ual
quali y and in es o sen imen , Acc Q*ins, is also nega i e and signi ican . i is in e es ing o no e ha ,
al hough he coe icien o Acc Q is insigni ican , he coe icien o he in e ac ion e m, Acc Q*ins, is
signi ican . his sugges s ha in es o sen imen has a s ong e ec on s ock e u ns and plays a ole in
he associa ion be ween Acc Q and s ock e u ns. Addi ionally, since he sign o he coe icien o he
in e ac ion e m, Acc Q*ins, is nega i e, simila o he coe icien o ins, he esul s u he con i m he
s ong and domina ing e ec o sen imen on s ock e u ns. his could mean ha in es o s’ psychologi-
cal s a e o mines has become a be e p edic o o s ock e u ns han undamen al in o ma ion (ea n-
ings quali y) in sou h A ican Jse-lis ed i ms.
As no ed in sec ion 4.1, on a e age ea nings o he sampled i ms a e o highe quali y. he signi ican
and nega i e coe icien o AccQ*ins could u he indica e ha when sen imen inc ease, subsequen
s ock e u ns dec ease o i ms wi h high ea nings quali y. he e o e, he esul s in panel A o able 6
sugges ha he quali y o a i m’s epo ed ea nings ma e s o in es o s and is impo an in he capi al
ma ke . his is consis en wi h pe o i and Wagenho e (2014), who epo ed ha ea nings quali y p o-
ides use ul in o ma ion o in es o s o in es men decisions and ha secu i y misp icing is educed o
i ms wi h highe ea nings quali y.
i is a highly possible ha in es o s pay less a en ion o accoun ing in o ma ion when ea nings is o
lowe quali y. he e o e, u he esea ch could in es iga e whe he he esul s o his s udy would ha e
been di e en i ea nings o he sampled i ms we e o lowe quali y, as well as whe he he esul s
would ha e been di e en in low- e sus high-sen imen pe iods.
As shown in panel B o able 6, when he coMpAQ is used as a measu e o ea nings quali y, he
esul s a e simila o hose in panel A. ha is, he coMpAQ is no ela ed o s ock e u ns, ins is nega-
i ely associa ed wi h s ock e u ns, and he in e ac ion e m coMAQ*ins is nega i ely ela ed o s ock
e u ns.
o e all, hese esul s sugges ha al hough a i m’s undamen al ac o s d i e s ock e u ns mo e-
men , in es o s beha io appea s o be one o he main ca alys s o change in s ock e u ns because
sen imen in luences he way in es o s p ocess undamen al in o ma ion.
Table 6. Reg ession esul s: in es o sen imen , measu es o ea nings quali y (aCCRQ & CoMPaQ) and s ock e u n.
Panel a Panel B
Column 1 Column 2 Column 1 Column 2
Coe icien s Coe icien s Coe icien s Coe icien s
in e cep 1.448*** 1.493*** in e p e 1.369*** 1.451***
(0.1096) (0.1113) (0.144) (0.1021)
aCCRQ 0.068 0.091 CoMPaQ 0.020 0.010
(0.0610) (0.0640) (0.1008) (0.0278)
ins −0.008** −0.002** inVs −0.002** −0.002**
(0.0008) (0.008) (0.009) (0.008)
aCCRQ*inVs −0.022** −0.005** CoMPaQ*inVs −0.001** −0.089**
(0.0094) (0.0018) (0.0006) (0.0075)
CPi −1.683*** −1.751*** CPi −1.630*** −1.744***
(0.3275) (0.3063) (0.313) (0.311)
gDPg 0.136*** 0.129*** gDPg 0.137*** 0.128***
(0.0370) (0.0383) (0.037) (0.038)
iPg −0.006*** −0.004*** iPg −0.006*** −0.004***
(0.0009) (0.0010) (0.0009) (0.0011)
size −0.012** size −0.13**
(0.0048) (0.005)
Le e age 0.060 Le e age 0.057
(0.0379) (0.0368)
MBR 0.195** MBR 0.189**
(0.0762) (0.0759)
n 1386 1386 n 1386 1386
his able epo s he esul s o es ima ing eq. (7).
***, ** and * deno e signi icance a 1, 5 and 10%, espec i ely.
Below each es ima ed coe icien is he s anda d e o in pa en heses. appendix 2 p o ides a desc ip ion o he a iables.
Sou ce: au ho s’ compu a ion.
cogen Business & MAnAgeMen 15
As explained in sec ion 3, mac oeconomic a iables, including he consume p ice index (cpi), gDp
g ow h (gDpg), and indus ial p oduc ion g ow h (ipg), which a e possibly co ela ed wi h in es o sen-
imen and s ock e u ns we e included in eg ession eqs. (6) and (7). columns 1, 2 and 3 o able 5, and
panels A and B in able 6 shows ha , hese a iables a e ela ed o s ock e u ns. speci ically, in all
models, cpi and ipg a e nega i ely ela ed o s ock e u ns, whe eas gDpg is posi i ely ela ed o s ock
e u ns. his is in ag eemen wi h p io s udies by eddy (2012), omo o (2010), and Benako ic and
posedel (2010), who ind ha mac oeconomic a iables a e associa ed wi h s ock e u ns.
Fo bo h eqs. (6) and (7), he eg essions we e es ima ed wi hou con ol a iables, and he indings
we e almos simila o he es ima ion wi h he con ol a iables. his indica es ha he inclusion o con-
ol a iables in o he eg ession eqs. (6) and (7), does no a ec he ole o in es o sen imen on he
ela ionship be ween undamen al ac o s and s ock e u ns.
5. Conclusion
his s udy examines he associa ion be ween a i m’s undamen al ac o s and s ock e u ns in he sou h
A ican capi al ma ke . he undamen al ac o s analyzed include accoun ing a iables (ea nings yields,
change in p o i abili y, and capi al in es men ) and ea nings quali y measu es (acc ual quali y).
Because a i m’s undamen al ac o s and in es o sen imen may a ec s ock e u ns, his s udy u -
he examines whe he sen imen a ec s he associa ion be ween a i m’s undamen al ac o s and s ock
e u ns. Following p io s udies, in es o sen imen is p oxied by he FnB/Be consume con idence
index, which is a su ey-based measu e o sen imen .
using a sample o i ms lis ed on he Jse om 1990 o 2022, we ind ha undamen al ac o s in luence
s ock e u ns. speci ically, among he undamen al ac o s s udied, he change in p o i abili y p edic s bes
s ock e u ns compa ed o o he a iables. We also ind ha ea nings yields and capi al in es men cause
changes in s ock e u ns, howe e , hei e ec on s ock e u ns a e weak and in luenced by o he a iables.
in addi ion, he indings e eal ha he ea nings quali y measu es a e un ela ed o s ock e u ns. one
o he measu es o ea nings quali y analyzed is a p oxy o abno mal acc uals. he esul s indica e ha
abno mal acc uals a e un ela ed o a ia ions in s ock e u ns. could o he ea nings componen s, such
as non-disc e iona y acc uals o cash lows be ela ed o s ock e u ns in sA? We lea e his o u u e
in es iga ions.
examining he ole o in es o sen imen in he ela ionship be ween undamen al ac o s and s ock
e u ns, we ind ha in es o sen imen in luences he ela ionship be ween accoun ing a iables and
s ock e u ns. his speci ically indica es ha , al hough accoun ing a iables a e ela ed o s ock e u ns,
he ela ionship is condi ioned by in es o beha io .
Mo eo e , he indings e eal ha in es o sen imen also a ec s he link be ween measu es o ea n-
ings quali y and s ock e u ns since he coe icien o he in e ac ion e m o measu es o ea nings qual-
i y and in es o sen imen is s a is ically signi ican . in addi ion, he ea nings quali y o he i ms included
in he s udy is o highe quali y, and he associa ion be ween he measu es o ea nings quali y and s ock
e u n is non-signi ican . he signi icance o he coe icien o he in e ac ion e m be ween sen imen
and measu es o ea nings quali y, sugges s ha in es o s pay a en ion o he quali y o a i m’s epo ed
ea nings, and ha sen imen has a s ong e ec on s ock e u ns. Fu u e s udies may p o ide mo e
insigh s by examining whe he sen imen le el (high sen imen le el s. low sen imen le el) a ec s
s ock p ices eac ions o he quali y o accoun ing in o ma ion.
he o e all indings o he s udy a e consis en wi h he adi ional inance li e a u e and he
beha iou al li e a u e ha a gue ha accoun ing in o ma ion and in es o beha iou al biases a ec secu-
i y p ices. in ac , p io s udies epo ed ha undamen al in o ma ion is associa ed wi h s ock e u ns.
p io s udies also ound ha in es o sen imen a ec s ock e u ns. ou s udy ex ends he li e a u e by
explo ing whe he in es o sen imen in luence he undamen al in o ma ion and s ock e u ns ela ion.
he esul s sugges ha he inco po a ion o i m’s undamen al in o ma ion in o s ock p ice/ e u ns may
be in luenced by in es o s beha iou al bias. As such, he use s o accoun ing in o ma ion mus pay
a en ion o he ma ke sen imen as he la e in luences he e ec o accoun ing in o ma ion on he
ou comes o capi al ma ke . he e o e, his s udy highligh s he impo an oles o bo h undamen al and
beha io al ac o s in he inancial ma ke .
16 n. c. Fonou-DoMBeu e Al.
he indings o he s udy also ha e implica ions o accoun ing s anda ds se e s, as he quali y o
accoun ing in o ma ion does ma e s o capi al ma ke pa icipan s such as in es o s, because sen imen
may in luence he way hey p ocess accoun ing in o ma ion.
Au ho s’ con ibu ions
he co esponding au ho n.c. Fonou-Dombeu did he da a collec ion, conduc ed he expe imen s and w i en he
a icle. he co-au ho s B. c. nomlala and c.J. nyide p o ided guidance in he design, s uc u e o he manusc ip s;
hey also p o ided insigh ul commen s ha help imp o e he quali y o he manusc ip s. All au ho s ead and
app o ed he inal manusc ip s.
Disclosu e s a emen
he au ho s epo he e a e no compe ing in e es s o decla e.
Abou he au ho s
Nyanine Chuele Fonou-Dombeu is cu en ly a lec u e a Du ban uni e si y o echnology. she
holds a phD in Accoun ing om he uni e si y o KwaZulu na al, sou h A ica, a Mas e and
honou s deg ee (Accoun ing) om no h-Wes uni e si y, sou h A ica and a Bcom om he
uni e si y o sou h A ica. he esea ch in e es is in he a eas o ea nings quali y, beha io al
inance, ai alue accoun ing and lean accoun ing.
Bomi Cy il Nomlala is an accomplished accoun ing schola , esea che , and dedica ed educa o who
b ings a weal h o knowledge and expe ience o he ield o accoun ing/audi ing. Wi h a passion
o os e ing he nex gene a ion o inancial p o essionals, p o . Bomi nomlala has made signi ican
con ibu ions o academia, he esea ch a ena and he accoun ing indus y.
Bomi nomlala is a p o esso in he school o Accoun ing, economics, and Finance a he
uni e si y o KwaZulu-na al (uKZn). he ecei ed his ph.D. in Accoun ing in 2019. he has o e i -
een yea s o audi ing/ o ensic educa ion and public sec o expe ience. he is a membe o he
Accoun ing and Audi ing p o essional bodies.
he is known o his engaging eaching s yle and commi men o impa ing p ac ical knowledge o his s uden s.
he has published o e 39 esea ch pape s on a wide a ie y o opics anging om accoun ing, audi ing, inance,
isk and insu ance. he has also supe ised o e 8 phD s uden s, mo e han eigh mas e s s uden s o comple ion
and a lo o honou s s uden s. he published his esea ch wo k bo h locally and in e na ionally o he audience and
also examined a numbe o heses and disse a ions on a wide a ie y o opics.
Celani John Nyide cu en ly heads he Depa men o Finance and in o ma ion Managemen a
Du ban uni e si y o echnology. he holds a DBA (Finance) om he uni e si y o KwaZulu-na al.
D . nyide is a well-published mul idisciplina y schola in he ields o manage ial accoun ing and
inance, business adminis a ion, and in o ma ion managemen . he leads a eam o esea che s in
he Accoun ing and in o ma ion Managemen (AiM) p ojec . Addi ionally, he has success ully supe -
ised nume ous pos g adua e s uden s and has pa icipa ed in se e al high-p o ile con e ences
in e na ionally.
Da a a ailabili y
Da a a e a ailable on eques
Funding
no applicable, no unding was ecei ed.
ORCID
nyanine chuele Fonou-Dombeu h p://o cid.o g/0000-0001-5608-3827
cogen Business & MAnAgeMen 17
Bomi cy il nomlala h p://o cid.o g/0000-0001-5471-1172
celani John nyide h p://o cid.o g/0000-0003-2883-0092
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Appendix 1:Va iables and da a sou ces
Va iables Da a sou ce
s ock e u ns
• sha e p ice
iRess Resea ch domain
Accoun ing a iablesea nings yields
• Change in p o i abili y
• Capi al in es men
iRess Resea ch domain
Ea nings quali yacc ual quali y
• CoMPaQ
iRess Resea ch domain
• In es o sen imen FnB/BeR Consume con idence index Bu eau o economic Resea ch websi e
Con ol a iablesFi m’s size
• Le e age
• Ma ke o book a io
iRess Resea ch domain
Mac oeconomics a iablesin la ion
• gDP g ow h
• indus ial p oduc ion g ow h
saRs Websi e
cogen Business & MAnAgeMen 19
Appendix 2:Va iables symbols and desc ip ions
symbols Desc ip ion
Re u annual s ock e u n
eaRY ea nings yields, compu ed as ea nings di ided by book alue o equi y
CPRoFi Change in p o i abili y compu ed as change in e u n on equi y mul iplied by book alue o equi y
CaPi Capi al in es men compu ed as he change in book alue o equi y
aCCRQ acc ual quali y compu ed using eq. (3)
naCCR no mal acc ual
asse o al asse s
CReV Change in e enue
PPe P ope y, Plan and equipmen
CoMPaQ acc ual, compu ed as he change in common s ockholde ’s equi y minus change in cash and cash equi alen
aCCV accoun ing a iables, ei he , ea nings, change in p o i abili y o capi al in es men
MeQ Measu es o quali y, ei he aCCRQ o CoMPaQ
ins in es o sen imen , p oxied by CCi
CCi annual sou h a ican Consume con idence index (also called FnB/BeR CCi), compu ed by a e aging i s qua e ly
alues.
ConV Con ol a iables
size Fi m size compu ed as he na u al loga i hm o ma ke alue o equi y.
Le e age Fi m le e age compu ed as deb s di ided by o al equi y
MaeV Mac oeconomic a iables
MBR Ma ke o book a io compu ed as book alue o equi y di ided by ma ke alue o equi y
CPi in la ion measu ed by he Consume p ice index
gDPg g oss domes ic p oduc g ow h
iPg indus ial p oduc ion g ow h
