The Relevance of Financial Statement Data in the Danish Equity Market: Assessing the Need for Additional Information for Informed Decision-making

Abstract

The study of capital markets is a significant area within financial and accounting literature. This research for example investigates the value relevance of accounting figures in explaining market values, and the calculation of a firm's true value through fundamental analysis. This thesis aims to assess the relevance of accounting data in the Danish equity market and explore the significance of supplementary sources of information. This is achieved by conducting a regression analysis of the market value of equity on a variety of accounting figures and performing a fundamental analysis of a representative company from our sample. To make sure that the regression results are not sensitive to functional form, two different models were applied. The findings show that while one form reveals only earnings as significant, the other form suggests that both earnings and book values are significant. However, the explanatory power of both models is low. Incorporating additional variables into the model, specifically intangible assets and cash flows, does not provide any additional explanatory power. Further robustness tests were also performed which showed that the results were sensitive to input factors. The low explanatory power and non-robust results indicate that financial statement information may not sufficiently reflect the market value of equity. From the fundamental analysis, it is suggested that there are benefits to including additional sources of information when evaluating Danish firms. The analysis provides a true value estimate of Royal Unibrew that seems to align with the trajectory observed in the market. The results of this thesis implicate that the market value of equity of Danish firms is not sufficiently reflected by financial statement information. The study suggests that fundamental analysis, incorporating additional sources of information in conjunction with financial data, is still a useful tool for investors when evaluating firms.