Investment Growth and the Relation between Equity Value, Earnings, and Equity Book Value

This paper focuses on surveying the effects of investment growth on the relationship between equity values and accounting variables. The main purpose of this research is more comprehensive study of relations between accounting data and companies'' equity values. Specifically, this paper deals with the fact that what changes previous investments of companies and investment expected growth impose in conditions of accounting data effectiveness on companies'' equity values. Research findings will indicate that how the relationships between equity values and profit and also equity values and book value are influenced by investment growth and consequently better conception of determinative factors of ratios such as cost to profit and cost to book value can be achieved. For this purpose, the data related to accepted firms in Tehran Stock Exchange in time period of to were used in cross-sectional data model. Using Zhang as the theoretical basis, the effect of investment growth on the relation between equity values and accounting variables was predicted and empirically tested. Research findings indicated that given book value, growth increases (positive) slope of the relation between equity value and earning for high-profitability firms. Also given earnings, equity value conversely depends on equity book value for high-profitability firms and growth reduces slope of the relation between equity value and equity book value.