Identifying and evaluating the information content of the statement of changes in equity based on Shannon's entropy (uncertainty) criterion

Subject Areas :

Saeed Bahrami ¹ , Sina Kheradyar ^{2 *} , Mojtaba Maleki Choubari ³

1 - Department of Accounting, Ra.C., Islamic Azad University, Rasht, Iran
2 -
3 - Department of Accounting, Ra.C., Islamic Azad University, Rasht, Iran

Received: 2025-07-07 Accepted : 2025-09-07 Published : 2025-09-07

Keywords: Information content, retained earnings, capital increase, legal reserve,

Abstract :

The overarching goal of capital market accounting research is to somehow answer the question of whether the financial accounting and reporting process provides non-redundant information to market participants. The information provided by financial reports can be useful in decision-making when, according to the Financial Accounting Concept Statement No. 1, it is reliable and relevant. Information is considered relevant if it can help its users make future economic decisions and has some kind of information content. The aim of this research is to identify and evaluate the information content of the statement of changes in equity based on Shannon's entropy (uncertainty) criterion. In line with the research objective, data from 165 manufacturing companies listed on the Tehran Stock Exchange during the period 2019-2023 were analyzed. The findings of the study showed that in the qualitative section, experts reached a consensus on the importance of retained earnings, capital increase, and legal reserve more than other disclosed items in the event of changes in ownership rights, and also, based on the Shannon entropy criterion, each variable can have information content in accordance with the order of priority of the experts. Also, the uncertainty ratio of the three variables of retained earnings, capital increase, and legal reserve creates more information content than binary combinations, which can be an advantage for investors who have less analytical power.

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