Relative and incremental value relevance of book value and earnings during the global financial crisis

Abstract

Purpose – The purpose of this study is to examine the relative and the incremental value relevance of book value and earnings in the Australian market in the context of the 2008-2009 global financial crisis (GFC) and the non-crisis period (NCP). Design/methodology/approach – Least square regressions are used to examine the research questions. Changes in the coefficient estimates and the relative explanatory power (adjusted R2) of book value (BV) and earnings between the GFC and the NCP are examined. Findings – The findings suggest that both BV and earnings are value relevant in the Australian market surrounding the GFC. There were structural breaks in the association of BV and earnings with firms’ market value. The value relevance of earnings has increased and that of BV has decreased during the GFC compared to the NCP. During the study period, the explanatory power of earnings was greater than that of the BV. Research limitations/implications – The single country context examined limits the generalisabil...