The Relationship between the EPS & the Market Stock Return (Case Study: Industrial Sector-Jordan)

Abstract

This topic is one of the more threads of financial market theory that have been studied by researchers in the accounting and finance field, and on the following the attempts by some scientists specialized financial to confirm or explain the result that reached by each of the study (Ball, R & P Brown) and study (Brown, L. D), which lead to low explanatory power of profit-variable in the regression model used to describe the relationship between stock returns and accounting profits. Because those researchers found during their review of previous studies and its evaluations in this area that profits generally do not explain more than 11% of the change in stock returns.

After we test the relationship between each of the (EPS &LEBS) and the market stock return we found the ability of each variable of the change in earnings per share and a variable level of earnings per share does not explain more than 9.9% of the market returns of shares joint stock companies listed in the industrial sector in the Amman Financial Market; The variation in the ability of winning each of the variable change in earnings per share and variable earnings per share in the interpretation of stock market returns makes it subject to identify the most variable interpretation of returns is not possible, or at least is characterized by a certain degree of difficulty.

Finally the use of more than one representative of profits in the form of the relationship makes profits more ability to interpret market returns and reduce bias resulting from errors in the measurement of profits.

Keywords’: Earnings per Share, Level of EPS, Industrial Sector, Amman Stock Exchange (ASE), Expected & Unexpected Return, Market Stock Return.