Changes In Value Relevance Research Articles

IFRS adoption and the value-relevance of financial statements figures in Nigeria

Research Question: Has IFRS adoption improved the value-relevance of financial statement figures in Nigeria? Motivation: The informativeness of the reported earnings, book values, and cash flows depends on the accounting standards used in preparing the financial statements. IFRS is a global set of accounting standards that tries to improve the relevance of accounting figures by recommending more realistic measurement and recognition criteria and increasing the level of disclosure of relevant information. Idea: The value relevance of accounting figures in predicting stock prices is widely acknowledged. However, this study tests whether IFRS adoption significantly improves this value-relevance by increasing the degree of correlation between accounting figures and stock prices in Nigeria. Data: The data were collected from the Bloomberg market data terminal and Datastream financial database. A sample of 85 listed companies was selected. The sample period was from 2007 to 2016. Tools: The study applied the Ohlson model (using fixed and random-effect models) along with the Driscoll-Kraay standard errors (DKSE) and Panel-corrected standard errors (PCSE) to anticipate autocorrelation, heteroscedasticity, and cross-sectional dependence biases. The Ohlson model was estimated separately for the pre- and post-IFRS adoption periods to detect changes in value relevance. The interactions of the IFRS dummy with earnings, book values, and cash flows were also estimated separately to detect the significance of IFRS interaction with the accounting figures. Findings: The results showed an overall increase in value-relevance by comparing adjusted R2s across the pre- and post-IFRS adoption period. Also, the interactions of IFRS with earnings, book value, and cash flows were all significant. Contribution: The study contributes to the existing literature by including cash flow in the value-relevance test in Nigeria and by applying estimation techniques that control for possible estimation biases. The authors recommend that investors pay more attention to these accounting figures under the IFRS regime when making investment decisions.

Tác động của thay đổi các quy định pháp lý về quản trị công ty đến mối quan hệ giữa lợi nhuận và giá cổ phiếu của các công ty niêm yết tại Việt Nam

This paper examines effect of changes in regulations on corporate governance in Vietnam on accounting quality in the aspect of relationship between earnings and share prices. After financial scandals, many countries have tightened legal regulations on corporate governance. In Vietnam, important legal regulations on corporate governance, including Security Law, Enterprise Law and Regulations on disclosure of information by listed companies, have been amended or issued in 2019-2020 and being effective from January 1, 2021. However, with a sample of approximate 300 Vietnamese listed companies in 2 years (2020- 2021), regression results reveal that there is no evidence for the changes in value relevance (relationship between earnings and stock price) in the period after the newly issued legal documents took effect. The evidence provided in this paper is consistent with some previous studies in developing countries and supports for the recommendation that each country should take consideration of its legal and cultural characteristics in adopting Westen corporate governance practices. This result is also useful for evaluating the effectiveness of the changes in CG regulations.

IFRS and the evolution of value relevance: evidence from an African developing country

Purpose This study aims to assess the evolution of the value relevance of book value, earnings and its components in Mauritius, an African developing country, focusing on value relevance changes after International Financial Reporting Standards (IFRS) adoption and subsequent local reforms. Design/methodology/approach The study relies on a data set of 567 firm-year observations (2001–2018) and the Ohlson valuation model to investigate value relevance after IFRS adoption, the implementation of institutional reforms and enforcement reforms. Findings Firstly, the authors find support for a rise in the combined value relevance of earnings and book value, albeit that book value significantly contributes to changes over time. The findings highlight the combined importance of IFRS adoption with institutional and enforcement reforms to improve value relevance. Secondly, the authors do not find evidence of a shift in value relevance between earnings and book value. Third, the cash flow model reveals a higher level of significance relative to the earnings model. Originality/value The authors extend the value relevance literature in the context of African developing countries. The present findings underpin the need for a reinforcing of relevant institutional and enforcement frameworks to ensure the benefits of IFRS adoption materialise. The findings also offer a contribution of how developing countries’ experience IFRS post-adoption while adding to the dearth of studies analysing IFRS enforcement practices.

IFRS Convergence and Value Relevance of Indian Accounting Information: The Earnings-Returns Association Analysis

Manuscript type: Research paper Research aims: India has recently joined the accounting revolution by implementing the International Financial Reporting Standards (IFRS) through the convergence mode. This paper aims to examine the value relevance of Indian accounting information by finding an association between stock returns and the levels of earnings and changes in earnings. Design/Methodology/Approach: The study follows both relative and incremental association approaches to investigate changes in the value relevance of accounting information prepared using the IFRS converged Indian Accounting Standards (Ind-AS), while also examining the impact of their voluntary use. The study employs the Easton and Harris (1991) model on accounting data collected from 2012-13 to 2019-20. The panel data of 7,064 firm-year observations covers 883 firms listed on the National Stock Exchange (NSE) and uses relevant econometric tests and multivariate panel regressions to test the hypotheses. Research findings: The findings reveal a decline in the returns value relevance following both mandatory and voluntary IFRS convergence. Theoretical contribution/Originality: The study is the first to document the changes in value relevance based on stock returns since the IFRS convergence process began in India. Practitioner/Policy implication: This line of research is significant in Indian capital markets to unravel the effects of the new standards on accounting as well as stock market variables. It has managerial implications for firm and standard-setters. Research limitation: The value relevance results are based on the returns model alone and the study does not analyse the price model.

Does mandatory IFRS adoption affect large and small public firms' accounting quality differently? Evidence from Canada

Canada adopted International Financial Reporting Standards (IFRS) in 2011. We investigate the impact of this mandatory change by examining whether value relevance and non-market-based accounting information changed for a comprehensive set of Canadian companies on the Toronto Stock Exchange (TSX). Our findings reveal the effects of IFRS adoption are not consistent across all firms as demonstrated by a minimal change in value relevance for large firms, but a significant increase for small firms. These differences are primarily attributed to the weakening (strengthening) relationship of book value to stock price for large (small) firms and a strengthening (weakening) relationship of earnings to stock price for large (small) firms. This suggests the goal of IFRS in providing improvement to the balance sheet is only achieved for small firms in Canada. For the non-market-based accounting quality measures of earnings persistence, earnings smoothing, earnings discretion, and the frequency of small profits to losses, the findings are mixed for large firms, but improve for small firms after IFRS adoption.

Debt crisis, age and value relevance of goodwill: evidence from Greece

PurposeThe purpose of this study is to investigate the value relevance of goodwill and its additional aspects during a long-term period in Greece. Furthermore, by implementing two of the most popular value relevance models, the Ohlson’s price and Easton and Harris’ return model, this study examines the impact of goodwill on Greek stock prices from 2007 to 2018, a period of 12 years in which International Financial Reporting Standards (IFRS) are applied. Furthermore, this study analyzes how goodwill’s value relevance changes as it ages and during the Greek debt crisis.Design/methodology/approachIn order to test the value relevance of goodwill we implemented two of the most popular value relevance models, Ohlson’s price and Easton and Harris’ return model. Our sample consists of non-financial listed Greek companies that reported positive goodwill accounting balances on their financial statements during the financial period from 2007 to 2018. Finally, we applied fixed-effects regression model to all equations.FindingsThe results provide evidence that the year-end goodwill accounting balance is value relevant, and that the debt crisis has improved goodwill’s information content. Finally, the empirical findings suggest that only current year acquired goodwill is value relevant compared to older goodwill, and therefore, goodwill’s impact on stock prices is decreasing as it ages.Research limitations/implicationsA noteworthy limitation of this study is that it focuses on a specific code-law country Greece, which is a relatively small economy compared to the whole Eurozone. This research contributes to the research literature as it confirms other research findings in the European context and specifically that goodwill based on IFRS is value relevant to financial statement users. Additionally, it investigates for the first time how goodwill was affected by the Greek debt crisis. Finally, it contributes to other researcher’s debate concerning the duration of goodwill’s value relevance in a code law environment such as Greece.Practical implicationsFinancial analysts and institutions are provided with more assurance about goodwill’s financial reporting quality to be embedded in the financial evaluation process of corporates. As this research confirms that goodwill should be regarded as an asset, companies should obtain better financial ratings from financial institutions and investors and thus will have better access to equity and debt funding.Originality/valueWe investigate the value relevance of goodwill in Greece during a long-term period of 12 years. Additionally, our study examines the impact of the Greek debt crisis on the information content of goodwill accounting balances and the period during which accumulated goodwill balances and within-year acquired goodwill maintain its value relevance. Our research could assist accounting standard setters such as the International Accounting Standard Board to evaluate the quality of specific standards such as IFRS 3 “Business Combination” and IAS 38 “Impairment of Assets.”

The Value Relevance of Earnings, Book Values, and Other Accounting Information and the Role of Economic Conditions in Value Relevance: A Literature Review*

ABSTRACTThe value relevance research in accounting offers robust analyses about how the market views accounting information. Although significant work has been done to date in this mature research area, the literature does not fully explain or agree upon the changes in value relevance over time, and the impact of economic conditions on the value relevance of accounting information is a relatively understudied research stream. We review three streams of the value relevance literature: (i) the value relevance of earnings and book values, (ii) the value relevance of other accounting information, and (iii) the role of economic conditions on the value relevance of accounting information. Further, we review the various explanations put forth in the literature to try to explain the variation in value relevance over time. Finally, we provide a limited baseline for the current state of scholarly work and offer insight for future value relevance research.

Temporal changes in the value relevance of analysts' forecasts

AbstractWe examine the temporal change in the value relevance of analysts' forecasts relative to accounting information over a 42‐year period. The temporal change in value relevance is measured using the explained variation (R2) from the cross‐sectional regressions of security prices and returns on accounting metrics, specifically earnings and book value, alone and jointly with other information proxied by analysts' forecasts using a sample of 102,875 U.S. firm‐year observations. Prior research suggests that the value relevance of accounting information has declined over time. If investors are relying on metrics other than financial metrics, we would expect the reliance on analysts' forecasts to increase. Interestingly, the joint relevance of accounting and analysts' forecasts also declines over our sample period and the incremental relevance of analysts' forecasts remains constant over our sample period, suggesting that investors are not substituting analysts' forecasts for accounting information.

Canada's Mandatory Adoption of IFRS: Impact on Market-Based and Non-Market-Based Accounting Quality

Canada adopted International Financial Reporting Standards (IFRS) in 2011. We investigate the impact and consequences of this mandatory change by examining whether value relevance and non-market-based accounting information changed for a comprehensive set of Canadian companies on the Toronto Stock Exchange (TSX). Our findings reveal the effects of IFRS adoption are not consistent across all firms as demonstrated by a minimal change in value relevance for large firms, but a significant increase for small firms. These differences are primarily attributed to the weakening (strengthening) relationship of book value to stock price for large (small) firms and a strengthening (weakening) relationship of earnings to stock price for large (small) firms. This suggests the goal of IFRS in providing improvement to the balance sheet is only achieved for small firms in Canada. For the non-market-based accounting quality measures of earnings persistence, earnings smoothing, earnings discretion, and the frequency of small profits to losses, the findings are mixed for large firms, but improve for small firms after IFRS adoption.

K-IFRS 도입을 전후한 영업권 및 손상정보의 가치관련성 변화

K-IFRS 도입을 전후한 영업권 및 손상정보의 가치관련성 변화

Earnings relevance changes post the Egyptian revolution crisis

Purpose This paper aims to investigate whether the value relevance of accounting information has been affected by the occurrence of the Egyptian revolution financial crisis. More specifically, this paper examines the value relevance changes of three key accounting constructs: operating cash flow, normal non-discretionary accruals and discretionary accruals before and after the Egyptian revolution crisis. Design/methodology/approach Ordinary Least Squares (OLS) regression is used to examine the changes in earnings value relevance across before and after the Egyptian revolution crisis. The performance matched Jones model (Kothari et al., 2005) is used to estimate the discretionary accruals. Findings After the Egyptian revolution financial crisis, the discretionary accruals (DAC) information value has significantly improved. However, the non-discretionary earnings components (OCF and NDAC) have minimal changes. The evidence of further analysis indicates that managers are using the discretionary accruals to signal the future adding value investments that respond optimally to changes in discount rates. Research limitations/implications The paper extends the literature debate about earnings management over a financial crisis; the findings provide implications for regulatory bodies that could learn how the common incentives of firms to attract potential investors during a crisis could lead them to provide a high-quality financial reporting. Originality/value Using data from the Egyptian market, the paper fills a research gap by examining the value relevance of earnings and tests whether the revolution crisis has influenced earnings reporting and firms’ values from a relatively developing country with special institutional and enforcement backgrounds.

Does lifting the objective-price constraint in revenue recognition increase the value relevance of earnings and revenue?

Purpose This paper examines how managerial discretion and judgment in revenue recognition affect earnings and revenue value relevance. Specifically, the purpose of this paper is to assess the impact of lifting the objective-price constraint in revenue recognition on the value relevance of earnings and revenue by examining firms’ contemporaneous returns-earnings/revenue relation before and after the implementation of Accounting Standards Update (ASU) 2009-13. In addition, this paper examines how the change in earnings value relevance is conditioned by agency costs, corporate governance, information environment, and audit quality. This paper further examines whether earnings, revenue, and accruals quality change after the objective-price constraint is lifted. Design/methodology/approach This paper employs a difference-in-differences research design to examine whether earnings and revenue value relevance are enhanced or lowered more for a list of 107 US firms that applied selling price estimates in revenue recognition under ASU 2009-13 than for a list of 107 matched US firms that did not apply selling price estimates. Sub-sample analyses are employed to examine how agency costs, corporate governance, information environment, and audit quality condition the change in value relevance. Additional analyses examine the changes in earnings, revenue, and accruals quality using accruals, revenue accruals, discretionary revenue, absolute abnormal accruals, earnings/revenue predictability, and smoothness. Findings The empirical results suggest that lifting the objective-price constraint in revenue recognition improves earnings and revenue value relevance for positive earnings and that the effect of information usefulness dominates that of managerial opportunism. Change in the earnings value relevance is conditioned by the level of corporate governance, information environment, and audit quality. Evidence of no significant reduction in the earnings/revenue/accruals quality corroborates the main findings. Research limitations/implications The findings lend support to the new revenue standard (ASU 2014-09) that continues the use of the estimates of selling price in revenue recognition. Originality/value This study provides some of the first evidence that managerial judgment exercised in revenue recognition through the use of selling price estimates (i.e. lifting the objective-price constraint in revenue recognition) enhances earnings and revenue value relevance while such benefit does not come at a cost of reduced earnings/revenue/accruals quality.

Mandatory adoption of IFRS in emerging markets: the case of Turkey

European-listed companies and many emerging countries have been required to present their consolidated financial statements in compliance with the International Financial Reporting Standards (IFRS) since 2005. Having cross-border comparability and transparency with this uniform accounting system is expected to provide higher accounting quality and value relevance. Evaluation of financial performance in terms of value relevance of IFRS is not only vital for existing investors or stakeholders but also for those who want to invest at the international level. Thus, in this study, we examine the value relevance of earnings and book value of equity on share prices through using Ohlson (1995) valuation model. While 2001 to 2004 is conducted as the pre-IFRS period, 2005-2008 is a post-IFRS period to display the change in value relevance in the same number of years. Our sample includes only nonfinancial firms that operate on BIST index. Since financial firms are subject to different regulations, we exclude them from the sample. The results show that the accounting information produced under IFRS is more value relevant. We test the value relevance with both cross-sectional and pooled regression for the periods. In addition, we use panel data analysis (survival analysis) to validate the increase in value relevance between the periods. We also test the firm size and earnings announcement effect on value relevance for robustness.

Change in value-relevance of disclosed RPT across accounting regimes: Evidence from Malaysia

This study investigates the value-relevance of the disclosure of the related party transaction and whether the value-relevance of such disclosure has changed after the mandatory adoption of international financial reporting standard (IFRS) in 2012 by listed firms in Malaysia. Analyses of the sampled firm from 2009 to 2015 revealed that the disclosure of related party transaction is value-relevant. We also find that earnings per share are value-relevant in pre-IFRS adoption, post-IFRS adoption and combined periods, while book value per share is only value-relevant in the post-IFRS adoption and combined periods. Our results also recorded a significant decrease in the value-relevance of the book value per shares of the firms with related party transactions during the post-IFRS adoption and combined periods. Conversely, the value-relevant of earnings per share of the firms with related party transaction increased in the post-IFRS adoption and combined periods. Our results are robust to the number of tests to validate our results.

Investigation on the value relevance of accounting information: evidence from incorporated companies in the Singapore capital market

The purpose of this study is to investigate the relative, incremental and the systematic changes in value relevance of the accounting information. This study also attempts to investigate the effect of earnings management on the value relevance of accounting information. It basically uses Ohlson’s (1995) valuation model to test the conceptual framework. The findings of this paper reveal that book value is more value relevant and incremental followed by earnings and, then, cash flow. Cash flow, however, performs a lesser valuation role. The results also show that combined book value and earnings are more value relevant than combined book value and cash flow. As a third contribution, the paper also finds that the value relevance of some accounting variables has increased over time, while others showed no evidence of their inclined or declined patterns in the value relevance of accounting information. Finally, the paper finds that earnings management has no effect on the value relevance of accounting information. Further analyses suggest that earnings management is opportunistic in the short run, but efficient in the long run, when firms are small or have high asset turnover

The Change in Value Relevance of Consolidated Financial Statements under K-IFRS

본 연구는 연결재무제표의 주재무제표화와 관련한 공시체계의 제도변화에 따른 가치관련성의 변화를 실증하였다. 구체적으로 본 연구는 2008년부터 2014년까지 유가증권시장 및 코스닥시장에서 연결재무제표를 공시한 5,966 기업-연도 표본을 대상으로 연결중심 공시체계의 도입단계를 도입기 (2008년 ~ 2010년), 과도기(2011년 ~ 2012년), 그리고 전면적용기(2013년 ~ 2014년)로 구분하였다. 그리고 연결중심 공시체계가 도입기에서 과도기로 진행된 경우와 과도기에서 전면적용기로 진행된 경우에 자산 2조원 이상인 기업과 자산 2조원 미만인 기업의 연결재무제표 가치관련성이 각각 어떠한 변화를 나타내는지 Ohlson(1995) 모형에 기초한 주가모형을 통해 분석하였다. 분석결과는 다음과 같다. 첫째, 도입기에서 과도기로 진행되면서 자산 2조원 미만인 기업은 연결 재무제표 중심의 공시체계 전환의 효과로 가치관련성이 증가했으나, 분·반기보고서에 대한 연결재 무제표 작성 유예의 영향 등으로 그 효과가 일부 혼재되어 나타났다. 그리고 자산 2조원 이상인 기업은 과거부터 연결중심의 공시체계를 적용해 온 영향으로 도입기에서 과도기로 진행되면서 가치 관련성에 있어 추가적인 변화는 나타나지 않았다. 둘째, 과도기에서 전면적용기로 진행되면서 자산 2조원 미만인 기업은 주당연결순자산과 주당연결순이익 모두 가치관련성이 증가함으로써 연결재무 제표가 주재무제표로서 안정적으로 정착한 효과가 나타났다. 그리고 자산 2조원 이상인 기업은 주당연결순자산의 가치관련성이 증가함으로써 과도기에서 전면적용기로 진행되면서 연결재무제표의 가치관련성이 제한적으로 더 증가하는 것으로 나타났다. 본 연구의 결과를 종합해 볼 때, 연결재무제표의 주재무제표화가 안정적으로 정착되고 있는 것으로 판단되며, K-IFRS의 도입과 그에 따른 연결중심 공시체계 도입이라는 정책은 성공적인 것으로 평가된다. 본 연구의 공헌점은 K-IFRS 도입 이후 연결재무제표 중심의 공시체계가 안정적으로 정착되었는지를 제도변화에 따른 각 단계별 가치관련성 변화를 통해 검증함으로써 정책적 효과를 실증하였다는 것이다.This study examines the change in value relevance according to the system change on disclosure relevant to the consolidated financial statements becoming the primary financial statements. Specifically, the study divides the process of change to the disclosure system into three stages—introductory period, transition period, and full adoption period. Afterwards, the paper analyzes the changes that took place in the company with asset over two trillion won and the company with asset under two trillion won in terms of value relevance of consolidated financial statements as the process of conversion progresses. The results are as follow. First, the company with asset of less than two trillion won has an conversion effect due to change in disclosure system; however, due to the impact of delay in making consolidated financial statements on the quarter and semi-annual report, the transition effect was partially mixed. Moreover, the company with asset over two trillion won does not have any additional change in value relevance as it moved from the introductory period to the transition period since it has applied the consolidation-oriented disclosure system from the past. Second, as it moved from the transition period to the full adoption period, the explanatory power of the stock price increases in both the consolidated net asset per share and consolidated net income per share for the company with asset of less than two trillion won, resulting in the consolidated financial statements as the primary financial statements with stability. Furthermore, as the ability to explain stock price of consolidated net asset per share increases in the company with asset over two trillion won, the value relevance of consolidated financial statements restrictively increase more as it progressed to full adoption period. The contribution of this study is that it investigates the policy effect by verifying, after the introduction of K-IFRS, whether the disclosure system on the consolidated financial statements is settled with stability through the value relevance for each stage of system change.

Changes in Value Relevance of Consolidated Financial Statements around IFRS Adoption

국내 상장기업은 2011년부터 의무적으로 국제회계기준을 적용하여 연결재무제표 및 별도재무제표를 작성?공시하고 있다. 특히, 연결재무제표는 IFRS 도입으로 주 재무제표가 되었으며, 법정 공시기한도 약 30일 단축되었다. 또한, IFRS 도입으로 연결재무제표 작성대상 종속기업의 범위도 변경되는 등 회계기준 변경도 존재한다. 이러한 요인으로 인해 연결재무제표의 가치관련성은 IFRS 전후 차이가 있을 것으로 예측된다. 이에 본 연구는 국제회계기준(IFRS)도입에 따른 연결재무제표의 가치관련성 변화를 다양한 방법을 통해 분석한다.BR 본 연구의 주요 결과는 다음과 같다. 첫째, IFRS 도입 후 주가에 대한 연결순이익과 연결순자산의 결합설명력은 별다른 변화가 없는 것으로 나타난다. 그러나 연결순자산의 가치관련성은 증가하지만 연결순이익의 가치관련성은 유의한 차이가 없어, 기업가치 결정에 있어 연결순자산의 상대적 중요도가 증가하는 것으로 나타난다. 이러한 결과는 IFRS 도입 이후 공정가치 회계의 확대로 연결순자산이 공정가치를 보다 충실하게 반영하는데 따른 것으로 보인다. 둘째, 2010 회계연도의 K-GAAP에 의한 연결재무제표를 IFRS로 전환함에 따라 발생하는 연결순자산 조정액과 연결순이익 조정액 중 연결범위의 차이로 인한 연결순자산 조정액과 연결순이익 조정액은 가치관련성이 없는 것으로 나타난다. 그러나 K-GAAP과 IFRS간 회계처리기준의 차이로 인한 연결순이익 조정액은 주가에 대해 추가 설명력을 가지는 것으로 나타난다. 이는 K-GAAP에 따른 손익에는 적절히 반영되지 않고 IFRS를 적용함에 따라 손익에 반영되는 항목이 존재함을 의미한다. 마지막으로, IFRS 도입 후 연결재무제표의 공시기한 단축에 따른 연결재무제표의 정보효과는 유의하게 감소한 것으로 나타나며, 이러한 결과는 회계정보의 신뢰성이 상대적으로 낮은 것으로 인식되는 코스닥 상장기업에서만 유의하게 나타난다. 이는 IFRS 도입으로 연결재무제표 공시기한이 단축됨에 따라 비외감종속기업이 연결대상에 포함되거나 연결재무제표 작성기간 및 촉박한 감사기간 등으로 오히려 연결재무제표의 신뢰성이 감소되었을 것이라는 시장의 부정적 인식이 반영된 결과라고 할 수 있다. 본 연구는 IFRS 도입을 전후하여 연결순자산과 연결순이익의 결합설명력 및 각각의 증분설명력을 검증하고, 연결재무제표의 가치관련성 변동을 가져올 수 있는 각 요인별로 정보효과의 변동을 분석함으로써 선행연구의 범위를 확장하였다는 데 공헌점이 있다.

What drives value relevance? The visibility effect in the adoption of a new accounting standard

This article contributes to the literature on the reasons that drive changes in financial information value relevance after the issuance and implementation of a new accounting standard. Currently, value relevance changes are explained through the lens of the reporting location literature, which points to the increased transparency of the reports as the main driver of value relevance increases. We empirically analyse the changes in the value relevance of other comprehensive income (OCI) after the issuance of IAS 1 Revised in continental Europe, and we discuss the role of visibility of accounting standards (the visibility effect) in explaining value relevance changes. We also test whether firm size and the regulatory quality of the country in which a company is listed drive the results. This study may be of interest to investors and standard setters, given the role that they play in increasing the environment of information. One of the implications of the visibility effect hypothesis is for standard setters to pay more attention to the way standards are communicated and made public to market participants.

Value Relevance of Accounting Information for Intangible-Intensive Industries and the Impact of Scale: The US Evidence

The structural shift in the USA from a tangible- to an intangible-intensive economy raises a concern that reporting based on generally accepted accounting principles (GAAP) might have lost its usefulness to investors. Amir and Lev [(1996) Value relevance of nonfinancial information: the wireless communications industry, Journal of Accounting and Economics, 22(1–3), pp. 3–30] argue that accounting information is not useful for intangible-intensive firms. In contrast, Collins et al. [(1997) Changes in the value relevance of earnings and book values over the past forty years, Journal of Accounting and Economics, 24(1), pp. 39–67] find that the value relevance (measured by R-squared) of accounting information has increased over time and that value relevance for intangible-intensive industries is as high as that for tangible-intensive industries. In this article, we attempt to resolve the above discrepancy by examining the impact of scale on R-squared (Brown, S., Lo, K. and Lys, T. (1999) Use of R2 in accounting research: measuring changes in value relevance over the last four decades, Journal of Accounting and Economics, 28(2), pp. 83–115). We find that, after controlling for scale, R-squared is lower for intangible-intensive industries than for non-intangible-intensive industries and has declined over time for intangible-intensive industries but remained stable for non-intangible-intensive industries. Interestingly, the declining trend ended with the demise of the ‘New Economy’ period (NEP) (Core, J. E., Guay, W. R. and Van Buskirk, A. (2003) Market valuations in the New Economy: an investigation of what has changed, Journal of Accounting and Economics, 34(2–3), pp. 43–67), and value relevance for both industry groups appears to be restored in the post-NEP to the pre-NEP level. We also find that R&D capitalisation increases value relevance for intangible-intensive industries, but does not completely eliminate the gap between the two groups.

The Nonlinear Value Relevance of R&D Investment in Listed Companies on Korean Stock Markets

This paper investigates the nonlinear value relevance of R&D investment in companies listed companies on Korean stock markets from 2001 to 2011. For examining whether the role of R&D investment is linear or nonlinear function in valuing market value of equity, this study uses ‘converted Ohlson(1995) model’ by inserting R&D investment variable in original Ohlson(1995)’s valuation. Moreover this paper replicates empirical method of Morck et al.(1988), Choi et al.(2009) and Shin et al.(2011) by adding square value of R&D investment in ‘converted Ohlson(1995) model.’ to test nonlinear function between R&D investment and market value of equity. This paper also splits total sample data into several subgroups according to the belonging markets, firm size, and technology level to observe the value relevance changes of R&D investment. Empirical results show evidences on the role of R&D investment in valuing market value of equity. Contrary to the general assumption about the linear function of R&D investment in valuing market value of equity, R&D investment has nonlinear(inverted U-shape) value relevance in every sample group(total sample, KOSPI firm group, KOSDAQ firm group, large firm group, small & medium firm group, high technology firm group, and low technology firm group) which is split by a firm’s characteristics. This result suggests that not all R&D investment could promote market value of equity, and rather excessive investment in R&D may decrease a firm’s value.