Original Research

Impact of tangible book value and operating earnings on firm value variants in South Africa

Atanas Sixpence, Olufemi P. Adeyeye, Rajendra Rajaram
Journal of Economic and Financial Sciences | Vol 14, No 1 | a575 | DOI: https://doi.org/10.4102/jef.v14i1.575 | © 2021 Atanas Sixpence, Olufemi P. Adeyeye, Rajendra Rajaram | This work is licensed under CC Attribution 4.0
Submitted: 21 April 2020 | Published: 29 January 2021

About the author(s)

Atanas Sixpence, Department of Finance, School of Accounting, Economics and Finance, University of KwaZulu-Natal, Durban, South Africa; and, Department of Finance, National University of Science and Technology, Bulawayo, Zimbabwe
Olufemi P. Adeyeye, Department of Banking and Finance, Faculty of Management Sciences, Federal University, Oye-Ekiti, Nigeria
Rajendra Rajaram, Department of Managerial Accounting and Financial Management, School of Accounting, Economics and Finance, University of KwaZulu-Natal, Durban, South Africa


Orientation: Empirical knowledge regarding which financial statement variables are linked to firm value is critical for profitable equity investment.

Research purpose: The study examines the impact of earnings before interest and taxes from continuing operations (EBITCOs) and tangible book value (TBV) on firm value variants (enterprise value and market capitalisation) in South Africa.

Motivation for the study: The need to determine the impact of book value and operating income on firm value post-global financial crisis motivated this study. Furthermore, conflicting empirical results motivated this investigation to determine if value relevance depends on the measure of firm value used by employing two variants of firm value.

Research approach/design and method: A dynamic panel of 50 firms was used, employing an autoregressive distributed lag model in two-step system generalised method of moments (GMM).

Main findings: Results showed that EBITCO is value relevant regardless of the firm value variant used. Tangible book value lacks value relevance irrespective of the firm value measure used.

Practical/managerial implications: During a takeover bid, investors should use EBITCO in valuing target firms and disregard TBV. New owners in an acquisition are guaranteed value for their money because of the link between EBITCO and enterprise value. Accounting standards setters should maintain the requirement that mandates companies to produce comprehensive financial statements. Company executives should implement strategies that boost EBITCO as a way of maximising shareholder value.

Contribution/value-add: Conservative measures of variables were adopted, something rarely done by scholars. Thus, the study contributes to the scant body of knowledge on value relevance that utilises conservative financial statement variable measures.


tangible book value; earnings from continuing operations; enterprise value; market capitalisation; system GMM; South Africa


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