Is the Usefulness of Accruals Superior to Real Income? Evidence from the Palestine Exchange

This research examines the value relevance of real profit using Economic Value Added (EVA) as a proxy versus accounting outcomes. The question at hand is whether the usefulness of real income numbers is superior to accruals (traditional performance indicators) for Palestinian corporations. This research utilized an experimental research design to gather panel data from the reported annual data of 31 non-financial listed corporations on the PEX from 2015 to 2019. Descriptive statistics and the Jarque–Bera test were used, along with a Nonparametric Spearman's rho Correlations test to evaluate linear relationships between variables. The Random Effect Model (REM) was used based on the Correlated Random Effects - Hausman Test to establish a concrete research model. The findings demonstrate that the market values of shares have a strong relationship with traditional measures, where the relative informativeness ability of accounting indicators is greater than the informativeness ability of real income. The study suggests using EVA as a supplement, not a replacement, for the current traditional accounting performance measurements. Future studies can compare the effect of real income and accounting indicators on a variable other than stock market value. As a policy implication, we advise users in Palestine to consider accruals but economic income indicators as supplementary. This paper is the first in Palestine to use advanced econometric analysis that establishes concrete findings about the conflict between Accounting-Based versus Economic-Based indicators.