An Examination for the Impact of F-Score Indicators on Stock Value under Mediating Role of Book

Abstract

In this study, the mediating role of book value between financial performance and market value is investigated by using mediated structural equation modelling as an alternative approach in the related literature. The theoretical frame of the study is constructed by benefit from the widely used value relevance of accounting models which treat earning and book value as exogenous to investigate the ability of information disclosed by financial statements to capture and summarize firm value. In the hypothesized meditation model book value is considered as a mediator while financial performance is used as an exogenous latent variable as the function of F-Score indicators instead of using a single proxy for earning. Quarterly announced accounting numbers and prices of active firms operating in Turkish electric power industry listed and traded on Borsa Istanbul between the years of 2009-2015 are used in construction of the dataset. The results of the model indicate that book value mediates the impact of financial performance on stock value. In other words, full mediator role of the book value makes the direct relationship between financial performance and stock value insignificant. Therefore, according to the findings, it is fair to say that (a) the effect of financial performance on stock value occurs indirectly through book value even financial performance has a primacy in investors’ decision making process and thus (b) investors make their decisions or shape their beliefs by comparing the book value with market value in the frame of realized financial performance in Turkey.