Value Relevance of Accounting Information and Noise Trading in Banks and Financial Institutions

Abstract

This study aimed to analyze the financial accounting information's relative and incremental value relevance between 2012 and 2019. It also analyzed the relationship between noise trading and the value relevance of financial accounting information using 564 firm-year observations on banks and financial institutions in the Indonesia Stock Exchange (IDX) from 2012 to 2019. The price valuation model prepared by Ohlson [1] was used to test the value relevance of accounting information. The findings showed the relative and incremental value relevance of earnings and book value during the study. Furthermore, noise trading has a moderating effect on the earnings' value relevance. The samples used were from the financial sector to compare value relevance from previous literature on manufacturing companies. The results could be useful to current and potential investors while considering investing in the financial sector.