Abstract
Background: This study tests the value relevance of interim accounting information. The study also explores whether the value relevance of annual and interim financial statements has changed over time.Aim: It explores whether the value relevance of interim financial statements is higher than the value relevance of annual financial statements. Finally, it investigates whether accounting information published in interim and annual financial statements has incremental value relevance.Setting: Data for the period from 1999 to 2012 were collected from a sample of non-financial companies listed on the Johannesburg Stock Exchange.Method: The Ohlson model to investigate the value relevance of accounting information was used for the study.Results: The results show that interim book value of equity is value relevant while interim earnings are not. Interim financial statements appear to have higher value relevance than annual financial statements. The value relevance of interim and annual accounting information has remained fairly constant over the sample period. Incremental comparisons provide evidence that additional book value of equity and earnings that accrue to a company between interim and annual reporting dates are value relevant.Conclusion: The study was conducted over a long sample period (1999–2012), in an era when a technology-driven economy and more timely reporting media could have had an effect on the value relevance of published accounting information. To the best of our knowledge, this is the first study to evaluate and compare the value relevance of published interim and annual financial statements.
Highlights
Dontoh, Radhakrishan and Ronen (2004) state that there is a commonly held view that annual financial statements have lost their value relevance because of a shift from a traditional-based economy to a highly technological economy
Earlier studies conducted in a traditional-based economy already provided some support for this notion, suggesting that annual financial statement information is not a timely reporting medium (Ball & Brown 1968), and that interim reports pre-empt some of the information in the annual report (McNichols & Manegold 1983)
Open Access financial statements and did not control for the value relevance of financial statements at interim reporting date; we argue that the value relevance of annual financial statements can be a function of the value relevance of interim financial statements
Summary
Dontoh, Radhakrishan and Ronen (2004) state that there is a commonly held view that annual financial statements have lost their value relevance because of a shift from a traditional-based economy to a highly technological economy. Prior research on the value relevance of accounting information published in annual financial statements, conducted in different settings (e.g. International Financial Reporting Standards (IFRS) adoption countries versus countries where locally developed generally accepted accounting practices were applied, common versus code law countries, etc.), provides evidence that annual accounting information is value relevant to market participants (see Barth et al 2001; Cahan et al 2000; Clarkson et al 2011; Collins et al 1997; Devalle, Onali & Magarini 2010; Dontoh et al 2004; Filip & Raffournier 2010; Francis & Schipper 1999; Gjerde et al 2011; Goodwin & Ahmed 2006; Hellstrom 2006; Holthausen & Watts 2001; Kothari 2001; Prather-Kinsey 2006; Thinggaard & Damkier 2008). Prior to 2005, interim financial statements were prepared in accordance with the South African Accounting Standard AC 127, Interim Financial Reporting, which was almost identical to IAS 34 (Oberholster 2014)
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