The process of investing in securities is a process fraught with many risks, especially when talking about investing in ordinary shares and investors may sometimes find it difficult to choose the shares that they will invest in or when forming their investment portfolio and that the investor needs to know the shares traded in the market, have they been priced properly Reduced or inflated and does the market value of the share reflect its real value?, If the shares are priced more than they should be, it is preferable to sell them here or if the opposite happens, then this encourages the investor to keep the shares in the hope that their prices will rise in the future and that both cases are high or low, which will affect the required return Consequently, on the decision to invest in shares, there are several ways to evaluate shares to find the real value of the share [1-3]. This research will focus on one of the evaluation models, which is called the Ohlson model [4-6]. The most general form of the model is that the value of the company is a function of the book value of the property right (the investor's capital) and the current value of the income [7]. The expected remainder. The research will focus on calculating the real value and comparing it with the market value and finding the relationship between them [8,9].

Research Problem

The problem of the research lies in the fact that some of the investors' decisions may be irrational in choosing the stocks in which to invest and the reason may be the lack of reliance on some financial models and methods that guide the investor and make his decision more accurate. Ohlson model of estimating the real value of companies operating in the Iraq Stock Exchange for the purpose of rationalizing the investment decision.

Research Objective

The research aimed to estimate the real value, compare it with the market value, determine the difference between them and then test the relationship between the market value and the real one.

Research Importance

The importance of the research stems from the importance of rationalizing the investment decision, which can be achieved if the real value estimation models are relied upon, including the (Ohlson) model, for the purpose of assisting the investor in investing in the best shares or the decision to buy and sell shares.

Research Hypothesis

The research stems from the hypothesis that (there is a positive relationship between the real value calculated according to the method (Ohlson) and the market value).

Research Community

The research community consists of industrial companies operating in the Iraq Stock Exchange, as 8 companies were selected for which financial statements were available, which constituted 15% of the industrial companies.

Study Ohlson

The study is based on linking the profits, the dividends and the book value of the property right with the real value of the share, in order to reach the appropriateness of the model to explain the changes that occur in share prices. The results of the study revealed that the accounting information is reflected in the real value of the shares better than it is reflected in other non-accounting information and the analysis has proven the high explanatory power of the model that depends on the book value of the share.

Study Myers

The study tested four models to predict future profit and use the result of each model to estimate the real value of the stock. The explanatory power of the real value of each model was tested with the explanatory power of book value and profit together. It relied on the non-accounting information available in the market and assumed that the non-accounting information and the development of production and other economic information affect future profits and according to the nature of the information. The results showed that the explanatory power of the model based on the real value determined according to the model.

Study Ahmed

The study aimed to develop a specific plan that may help investors rationalize the investment decision based on the financial indicators extracted from the financial statements. The study used the questionnaire as a main tool to collect the necessary information and data in order to achieve the objectives of the study. The sample consisted of 76 participants who were randomly selected from Jordanian banks. The results concluded that 64% of the participants do not participate in investment decisions. This indicates that investment decisions are restricted to individuals. appointed. Moreover, indicators from income statements are already being used in rationalizing investment decisions by Jordanian banks. Finally, operating revenues were the most widely used means of rationalizing investment decisions.

Study Ravanpaknodezh and Amiri

The study aimed to determine the model applied in the formation of stock prices in the stock market to find the appropriate market value model among the value-based evaluation models. As well as comparing stock prices on the Tehran Stock Exchange with the prices resulting from different theoretical models, four models were chosen for evaluation. Real information of the companies was placed in each model during the study period and the stock prices obtained from the models were compared with the market price. It was noted that there is no compatibility between the stock prices in the market with the prices of the models. This is due to the reason for the inability of the market to provide useful information in a timely manner to predict future cash flows. And the inability of investors. And the use of information to measure investment risks and the high risks of investment.

The Theoretical Aspect

The Concept of the Real Value and the Market Value of the Share: In the beginning, a definition of ordinary shares can be given as being a financial security that proves that the shareholder owns part of the company’s ownership rights [2]. There is another definition of ordinary shares as representing a unit of ownership of the joint-stock company [3]. The shareholder obtains a number of rights, the most important of which is his ownership of his share in the company, the right to receive profits, view the company’s books and vote in the general assembly. The true value of ordinary shares lags behind their market value determined in the financial market and the reason for the difference is due to the criteria used. To develop the real value, it may not be the same as the judgments of shareholders in the market itself. It is the value based on the analysis of financial information about a specific facility. The true value is justified by economic and financial facts related to the facility. There have been many names for the real value, including reasonable value, fair value, theoretical value and true value). The investor actually knows it in exchange for obtaining the stock [9]. Francis believes that the deviation of the market value of the share from its real value may be as a result of manipulation of share prices or the lack of sufficient information about the company [4,5].

Defensive Stocks

These are the stocks that are expected to remain stable or increasing during the economic recession, business deterioration and sharp fluctuations in the financial markets.

Cyclical Stocks

It is represented by the stocks whose price level and profits are linked with the general economic situation. They are stocks belonging to companies that are vulnerable to the change of the economy.

Speculative Stocks

These are the stocks in which the investor hopes to increase their prices in the future. Instead of basing the investors’ decisions on the historical data of the company, the investors in these stocks are betting that any new information and means of production will positively affect the increase in the company’s stock prices. These stocks tend to fluctuate whenever new information becomes available.

Successful Stocks

Blue-Chip Stocks: These stocks belong to large, well-established and well-known companies, that is, they are stocks issued by leading companies in their field of industry and are characterized by efficient and effective performance and provision of different, high-quality products.

Stocks Income

These shares are purchased by investors with the aim of obtaining the cash dividend from the windfall. These shares also provide a regular form of income distributions that are predictable in the future.

Concepts related to stock values ​​can be classified into several concepts of value.

• Nominal Value: It is a theoretical value recorded for the paid-up capital account in the accounting entries and has no economic value to investors

• Book Value: It represents the contributions of the organization’s shareholders in exchange for each share of the organization’s shares and is measured by dividing shareholders’ equity by the number of common shares

• Market Value: It represents the trading price in the financial markets and is determined based on several forces, including the risk to which the organization is exposed, rumors, general economic conditions and the extent to which the organization achieves profits. If the organization’s profits increase, the demand for the organization’s shares will increase and therefore their price will rise more than the nominal and book value

• Liquidation Value: It is based on the liquidation value of the organization’s assets after paying the rights of all creditors and holders of preferred shares

• Real Value: Ordinary shares have a real value that differs from the value determined in the financial markets, meaning that the real value differs from the actual market value of the share. Analyzing financial information about a particular facility

Ohlson Model for Valuing Common Stocks

Ohison presented an accounting model for valuing common stocks. This model achieved great success in financial and accounting research because financial information was considered our component of value and depended on property rights. In addition to it explicitly reflecting accounting measurements, it links profits, distributions and the book value to property rights. In real value per share [8]. The most general formulation of the model is that the value of the company is a function of the book value of equity (investor capital) and the present value of expected residual income [7]. The model is based on the following assumptions:

• The market value of the organization is determined according to the current value of the dividend expected in the future and this model is expressed in the following relationship (1):

• The net surplus is expressed by the following relationship (2):

Then:

b_t         = The book value of the share at the end of financial period t

b_(t-1)  = The book value of the stock at the end of the preceding period t-1

             X_t         =  Net profit for the current period t

d_t         = Scheduled or distributed distributions for the current period t

According to these assumptions, the value of the company is a function of the current book value and the expected extraordinary profits, according to the following formula (3):

Then:

V_t                                      : The real value of the stock for period t

Bt                                        : Book value per share for period t

E_t: [ X_(t+i)-rb_(t i-1)]      : Forecast factor for period t

X_(t+i)                                : Earnings per share for the period t+i

r                                          : Required rate of return

And by substituting the remaining profit in equation (4) into the numerator of equation (3), the following formula (4) results in the accounting valuation model for ordinary shares:

Analysis of the Study Variables

Analyzing the Variables of the Ohlson Model for the Companies in the Research Sample: From the Table 1, it is clear that the highest average beta coefficient was achieved by Al-Mansour Pharmaceutical Industries, with an average beta coefficient of 5.401. The lowest beta coefficient was for the National Company for Chemical and Plastic Industries, as the average was 0.320. With regard to the required rate of return, the highest average was for Al-Mansour Pharmaceutical Industries, as it reached The average is 2.397 and the lowest average was for the Modern Sewing Company, as the average was 0.019. With regard to the earnings of one ordinary share, the highest profit per share was for the Baghdad Soft Drinks Company, as the average was 0.203 and the lowest average for Baghdad for the packaging materials industry, as the average was -0.033. With regard to the book value of the share, it was the highest share of the book value of the Modern Sewing Company and Baghdad Company for the Manufacturing of Packaging Materials, as the average amounted to 0.059 for the two companies and the lowest average for the Chemical Industries Company, with an average of 0.011.

Table 1: Analysis of the Variables of the Ohlson Model for Valuing Common Shares

Analyze the Difference Between the Market Value and the Real Value

From the Table 2, it is clear that the highest average market value was achieved for Al-Mansour Pharmaceutical Industries Company, as the average was 0.440 and the lowest average was achieved for the Modern Sewing Company, as the average was 0.021. With regard to the market value, the highest average was achieved for Baghdad Packaging Materials Company, as the average was 54,380, while the lowest average was achieved. It was the share of Al-Mansour Pharmaceutical Industries, as the average was 0.742 and as for the difference between the market value and the real value, the highest difference was in Baghdad for the packaging materials industry, 54.093 and the lowest difference was for the production of ready-made clothes, as the average was 0.585. Also, through the Table 2, it is clear that all evaluation results It was amplified.

Table 2: The Difference Between the Market Value and the Real Value

Classification of Companies with the Highest Real Value per Share

The Table 3 shows the highest real value of the companies and through what is mentioned in the Table 3, the shares of these companies will be relied upon in building an investment portfolio.

Table 3: Companies with the Highest Real Value per Share

Investors' Preferences Towards Risk

From the Table 4, it is clear that companies vary in terms of the degree of risk of their shares and that investors have a choice regarding whether to bear the risk or not. The company on the right of the Table 4 has a low beta, while the one on the left has a high beta.

Table 4: Investors' Preferences Towards Risk

The Relationship Between the Real Value of the Stock According to the Ohlson Model and the Market Value

The Table 5 shows the correlation between the real value of the share according to the Ohlson model and the market value of ordinary shares. From it, it is clear that the relationship between the two variables is direct and strong, as the correlation coefficient reached 70%, as this relationship reveals the explanatory power of 49% for the aforementioned indicator of the change in stock returns. It is a significant relationship because The p-value is less than the 5% level of significance.

Table 5: The Result of the Relationship Between the Real Value of the Share According to the Model and the Market Value

• The results of the research on measuring the real value of the share according to the (Ohlson) model proved that the real value was far from the market value and this indicates a negative situation on the financial market

• The results of the research proved the validity of the hypothesis from which the research was launched that there is a positive relationship between the market value and the real value of the companies in the same research

• It is noted from the results of Table 1 that out of 8 companies, there were 5 companies that had a beta coefficient greater than the correct one and this indicates that those shares have a high Soviet risk

• As a result of the fact that the real values ​​of the shares are less than the market value, here the decision to sell the shares is appropriate for fear of a drop in the prices of the shares of those companies in the future

• The results of the analysis indicate that it is possible for the investor to achieve financial gains from the shares they hold as long as their market values ​​are higher than the real one

Recommendations

• Investors who have risk preferences can invest in stocks of companies that have a high beta coefficient.

• It is possible to apply other models of the real value in the Iraqi market for securities and in a larger sample to reach more comprehensive results

• The need to increase the degree of information disclosure in order to raise the efficiency of the financial market by providing financial information and making it available to all investors

• It is possible to build an investment portfolio in companies with low real value in the hope that their prices will rise in the future

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