Abstract
This paper examines the explanatory power of earnings in equity valuation and value relevance of earnings through a combination of cross-section and time series regression analysis. Cross-section models are based on all US firms with a 31 December year-end in the Compustat files between 1963 and 2009. Time series models are based on a sample of 30 long-lived firms with 55 years of continuous data from 1955 through to 2009. The cross-section models show a decreasing magnitude in the elasticity of market value with respect to earnings over time relative to book value, suggesting a decline in value relevance of earnings. This finding is explained by an increasing incidence of reported losses. We find no direct evidence that the increased incidence of losses is due to poor earning quality or earnings management.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Journal of Contemporary Accounting & Economics
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
