Is operating performance driving stock performance? - A study on Swedish listed real estate companies

Abstract: As suggested by the title, the purpose of this study is to analyse the relationship between stock performance and operating performance using a sample of Swedish listed real estate companies. In recent years, Swedish real estate companies have experienced positive development profits and stock prices, driven by favourable development in real estate prices. Moreover, real estate companies have been awarded with a unique treatment in accounting according to International Financial Reporting Standards (IFRS), as fair value adjustments of the properties are reported in the income statement. In answering my research question, I use a regression-based approach connecting accounting data to stock performance. My sample period covers the last 10 years which gives a total sample of 163 company-year observations. The results indicate a positive relationship between operating performance and stock performance, in line with theory. According to my sample, levels in operating performance exhibits highest relationship to stock performance, while value relevance of change in operating performance appears to increase in recent years. I expand to earlier studies using a homogenous sample along with the method of decomposing earnings, separating operating activities from financial activities. As an attempt to contribute in a broader context, I discuss and problematize a high degree of value relevance related to the fair value adjustments.