Value Relevance Of Earnings Research Articles

The impact of economic policy uncertainty on earnings value relevance

AbstractEarnings value relevance, defined by the predictive and explanatory power of corporate earnings information for market value, reflects accounting earnings decision utility and the capital market's information efficiency. Economic policy uncertainty (EPU) reduces information quality, impairs the information environment, and disrupts interpretation of information, diminishing earnings value relevance. Using a dataset comprising Chinese A‐share listed companies from 2006 to 2019, we empirically examine the impact of EPU on earnings value relevance. Our finding indicates that EPU reduces earnings value relevance, and the effect is more pronounced in firms with lower governance effectiveness and higher firm complexity. Channel analysis demonstrates that decreasing information quality, undermining the information environment, and impeding investor decision‐making are the main three mechanisms. In light of these findings, the government should strive to enhance stability in economic policies and improve information efficiency, fostering a positive interaction between firms and the capital market.

Financial reporting quality dynamics in India: the role of IFRS convergence and corporate governance

Purpose This paper aims to investigate the impact of International Financial Reporting Standards (IFRS) convergence on value relevance and earnings management for Indian listed firms while also exploring whether the relationship is moderated by the firms’ corporate governance structures. Design/methodology/approach Corporate governance (CG) scores of 573 listed firms were calculated by using a self-constructed index for a period of 7 years (2014–2015 to 2020–2021). Static and dynamic panel models with generalized method of moments (GMM) estimators were used to test the conditional hypothesis that the impact of the Indian IFRS converged standards (Indian Accounting Standards [IndAS]) on information quality is affected by the firm’s corporate governance strength. Findings The estimates reveal that the positive effect of corporate governance scores on the value relevance of earnings reduces in the presence of IFRS, whereas the interaction of both the variables on book values remains insignificant. Secondly, the use of IndAS reduces discretionary accruals, but corporate governance does not have a significant moderating effect within the equation. Practical implications The results offer an interesting perspective into the debate on IFRS consequences and the role of internal institutional frameworks. It provides preliminary evidence suggesting that although corporate governance improves the value relevance of earnings, it may not be entirely effective in reducing the management of earnings. Originality/value To the best of the authors’ knowledge, it is the first study in India to provide empirical findings on the role played by corporate governance mechanisms in explaining the relationship between IFRS convergence and accounting information quality. The analysis accounts for modelling issues such as endogeneity and autocorrelation by using dynamic panel models and instrumental variables.

Climate change exposure and the value relevance of earnings and book values of equity

Climate change exposure and the value relevance of earnings and book values of equity

Margin trading and value relevance of earnings: Evidence from China

Information asymmetry and accounting information effectiveness are important issues in the capital market. Based on a sample of China's A-share listed companies from 2007 to 2021, this paper studies the impact of China's margin trading and short-selling policy on the value relevance of earnings and the unerlying mechanisms. We find that, compared with companies that are not included in margin trading and short selling lists, the earnings value relevance of listed companies increases significantly after allowing for short selling. In addition, margin trading and short selling improve the value relevance of earnings more significantly for firms with higher agency costs and firms with lower information transparency.

The Effect of ESG and Earnings Quality on the Value Relevance of Earnings and Book Value

This paper aims to investigate the value relevance of ESG (environmental, social and governance) and earnings quality of companies listed on the Indonesia Stock Exchange during the period from 2012 to 2022. Furthermore, this study also investigates the value relevance of earnings and book value in the presence of ESG and earnings quality. The value relevance was operationalized using Ohlson's price model (1995), and data was extracted from the Refinitiv database. Based on 353 firm-years, the panel data analysis indicates that ESG and earnings quality have value relevance; this proves that information about ESG and earnings quality are used by investors and stakeholders as a basis for decision-making. Moreover, the presence of ESG has a negative impact on the value relevance of earnings but has a positive impact on the value relevance of book value. By contrast, with ESG, the presence of earnings quality has a positive impact on the value relevance of earnings but has a negative impact on the value relevance of book value, implying that when the quality of accounting information increases, users rely more on earnings information rather than book value. A robustness test testing was also carried out by conducting sub-sample tests based on the period during which the COVID-19 pandemic occurred during the research. Results show that before the pandemic, users tended to be more interested in ESG information, while during the pandemic, users tended to focus more on earnings quality information as a basis for decision-making.

Does assurance improve the quality and value relevance of non-GAAP earnings?

Does assurance improve the quality and value relevance of non-GAAP earnings?

Vrednosna relevantnost upravljanih zarada u indijskim firmama - analiza uticaja konvergencije MSFI korišćenjem dinamičkih panel modela

The study explores the relationship between earnings management and value relevance of accounting information of Indian listed firms by investigating three different modes of earnings management - total, short-term and long-term discretionary accruals. Additionally, the study investigates the impact of the converged International Financial Reporting Standards (IFRS), known as Indian Accounting Standards (IndAS), on earnings management which in turn influences value relevance. This study is the first in India to analyse the differential effects of short-term and longterm earnings management on value relevance and to address the endogeneity issue in the price value relevance model through dynamic panel modelling while controlling for the use of the IndAS. The study finds a significant effect of both short-term and long-term accruals management on value relevance and a positive influence of IndAS on the relationship between earnings management and firm value.

매출변동에 따른 이익지속성과 재무지표의 가치관련성

[Purpose]The Ohoson(1995) explains the value relevance between earnings and net assets through earnings persistence. This study investigates whether sales change has a differential impact on earnings persistence and whether this has a differential effect on the value relevance of earnings. [Methodology]By analyzing data from 20,589 firm/years listed on the KOSPI and KOSDAQ, we verify whether differences in earnings persistence when sales increase or decrease and whether there is a difference in the value relevance of accounting earnings when sales increase or decrease. [Findings]First, persistence of net income is lower in times of sales decline than sales increase. Second, the decrease in earnings persistence is more evident in operating income than net income. This result seems to be because net income includes non－recurring items that are highly temporary. Finally, the value relevance of earnings was lower in a period of sales decline than in a period of sales increase. [Implications]We should consider sales change as a critical factor when we estimate earnings persistence, and also should consider the difference of earnings persistence due to sales change when we use Ohlson (1995) type firm valuation model.

The Value Relevance of Earnings and Book Values: A Case from Financial Institutions in Indonesia

Purpose: This study aims to assess the field of the accounting value relevance of earnings and book value on stock prices of banks and financial institutions listed in the Indonesia Stock Exchange. Methodology: Using a sample of available banks and financial institutions listed in the Indonesia Stock Exchange from 2014 to 2021, this paper accommodates the documented accounting information in an emerging market context by using stock price of four months after year-end as a dependent variable. This study used the panel data regression technique on 31 banks and 36 others financial institution during the study period. Findings: This research find that earnings and book value are statistically significant associated with firm stock price. Also, using these variables together is positively related to the firm stock price. Comparatively between banks and financial institutions, these obtain evidence that earnings per share is statistically more value-relevant than book value. Novelty: This research used the financial sector, both banking and other financial institutions, because both types of institutions are intermediary institutions that greatly influence a country's economy.

Peran Tata Kelola Perusahaan Dalam Meningkatkan Relevansi Nilai Pengukuran Nilai Wajar Aset Nonkeuangan

Accounting information is one of many information that is used in making decisions by investors. Accounting information has value relevance when the information raises investor reactions, meaning that the information is used for decision-making that affects stock prices. This study aimed to examine the value relevance of earnings, book value of equity, and fair value measurement of non-financial assets, along with the role of corporate governance in increasing the value relevance of that information. This study used 18 companies listed on the LQ45 index on the Indonesia Stock Exchange (IDX) during 2018-2022. Moderated Regression Analysis (MRA) was used as an analytical tool to test the relationship of research variables. The results showed that earnings, book value of equity, and fair value measurement of nonfinancial assets had value relevance. Corporate governance was found to play a role in improving the value relevance of earnings and the fair value measurement of non-financial assets. The existence of corporate governance was able to reduce agency conflicts and provide assurance that information has been presented fairly to investors thereby increasing value relevance.

Financial Reporting Quality During COVID-19 Pandemic: International Evidence

This paper examines the effect of the COVID-19 pandemic on financial reporting quality proxied by earnings conservatism and value relevance of accounting information. Our final sample consists of 10,510 firm-year observations from 29 countries with a balanced number of 5,255 observations for pandemic and pre-pandemic periods. The results show that during the pandemic, the financial statements of companies with a financial year end of 31 March 2020 have different qualities than those in the pre-pandemic period. Lower earnings conservatism is demonstrated in the pandemic period compared to the pre-pandemic period, supporting the argument that business tends to slow the recognition of bad news as the pandemic starts. The value relevance of accounting information declined in the pandemic period, primarily affected by the reduced value relevance of the book value of equity. The findings of this study can help investors evaluate the quality of accounting information and make smarter investment decisions, especially when most companies are in financial trouble.

The role of real earnings management in the value relevance of accounting information in Indonesia

Purpose- One feature that should be integrated in financial statements to be relevant to decision-makers is the relevance of the information to the users. When the value and usefulness of accounting information used to gauge business financial performance are undermined by earnings management methods, problems arise. As a result, the information presented may deceive financial statement users about the corporation's financial performance. Because IFRS demands managerial judgment in the accounting process by definition, its adoption may even increase the chance for real earnings management (REM). This study aims to examine the impact of REM to the value relevance of accounting information before and after IFRS adoption. Methodology- The population was manufacturing companies listed on the IDX, with samples 230 firm year observations consists of one hundred fifteen firms year before adoption of IFRS and one hundred fifteen firms year after IFRS adoption. this study used firms’ abnormal levels of cash flows, production costs, and discretionary expenditures as proxies for real earnings management. Using a price model and panel data, the main result confirms that real-based earnings management has an impact on the value relevance of earnings and book value of equity before IFRS adoption, but has no effect after IFRS adoption. Findings- The findings revealed that prior to the adoption of IFRS, real earnings management was employed by companies that had higher earnings value relevance and lower equity book value relevance than companies that did not apply earnings management. After the adoption of IFRS, there is no significant effect of real earnings management on the value relevance of earnings and equity book value. Conclusion- The results show that investors believe that earnings are a signal from managers with the implementation of real earnings management prior to the adoption of IFRS, but after the adoption IFRS, they may not be able to do so. Keywords: Real earnings management, value relevance, accounting information, earnings, equity book value, JEL Codes: M40, M41, M49

Sticky behavior of R&D Costs and Its Relevance to Firm Value: Evidence from Listed Companies in Korea

Purpose: The purpose of this study is to investigate the impact of sticky behavior in R&D costs on firm value. The study aims to gain insights into whether the stickiness of R&D costs is a rational choice based on managerial foresight or if it stems from managerial self-interest. Design/methodology/approach: For the regression analysis, a modified version of Ohlson's accounting-based valuation model (1995) was used to assess the impact of R&D costs on firm value. and the stickiness of R&D costs was measured using the model proposed by Homburg & Nasev (2009). International Financial Reporting Standards were adopted in Korea in 2011, and empirical analysis was subsequently conducted using data from listed companies. Findings: The empirical results were as follows. Firstly, R&D costs reported as expenses showed a negative (-) correlation with firm value, while the stickiness of R&D costs was found to have a positive (+) impact on the value relevance of earnings. Secondly, R&D costs reported as assets did not have a significant impact on firm value, and the stickiness of R&D costs did not have a significant impact on the value relevance of net assets. Research limitations/implications: Overall, the findings of this study support the accounting treatment of R&D costs as expenses. Moreover, the study reveals that the sticky behavior of R&D costs helps alleviate the negative value relevance of R&D expenses. Originality/value: This study distinguished between capitalized R&D costs and expensed R&D costs, and examined their value relevance by investigating the impact of sticky behavior on earnings and net assets.

Satu Dekade IFRS dan Relevansi Nilai Laba pada 50 Biggest Market Capitalization

<p><em>This study aims to examine whether the convergence of the International Financial Reporting Standards (IFRS) can increase the Value Relevance of earnings on the financial statements of companies listed on the Indonesia Stock Exchange (ISE). This study covers the period before the IFRS convergence (pre- IFRS) in 2010 and after the IFRS convergence (post-IFRS) in 2019. The research sample is a public company that is included in the 50 largest market capitalization, 50 biggest trading frequencies, 50 biggest trading volumes, and 50 biggest trading values. The study was conducted by comparing the adjusted R square value in multiple linear regression models in the period before and after IFRS, and comparing the adjusted R square value between net income and comprehensive income after IFRS. The results of the study prove that there is an increase in the relevance of the value of earnings after the implementation of IFRS and comprehensive income has a value relevance that is higher than net income. The results of the study prove that there is an increase in the relevance of the value of earnings after the implementation of IFRS and comprehensive income has a value relevance that is higher than net income.</em></p>

Changes in accounting regulations toward IFRS and value relevance of accounting information- evidence from Vietnamese listed firms

In the late of 2014, the new Vietnamese accounting regimes for enterprises, which is regarded as being more appropriate for the business practices and being harmonized with IFRS, was issued. The new regulation is a step forward in the roadmap of IFRS adoption in Vietnam with an expectation of improvement in accounting quality. This paper contributes to the discussion of the benefit of IFRS adoption by providing statistical evidence on how the new accounting regimes effect to the value relevance of accounting information (i.e. the relationship between accounting earnings, book values of equity and share price) of Vietnamese listed firms. Based on financial data of 100 Vietnamese listed firm in 10 year (2010-2019), panel regression analysis reveals that the new accounting regimes only enhance value relevance of earnings but do not affect to the relationship between book value of equity and share prices. These results confirm that harmonization of accounting regulation with IFRS have certain effect to accounting quality. This supports for the direction to adopt IFRS in Vietnam but also alerts for more empirical research in the future to understand deeply on the cost and benefit of IFRS in developing countries like Vietnam

Disclosure of Organizational Ambidexterity Activities and Earnings Quality in Oman

Purpose: This study examines the association between organizational ambidexterity disclosure (OAD) and earnings quality (EQ) in terms of earnings persistence (PER) and value relevance (VR). Theoretical framework: Organizational ambidexterity disclosure (OAD) is one type of forward-looking disclosure (FLD) which includes all information about exploration and exploitation activities. In accounting, the study is interested in how (OAD) affects the firm’s earnings quality. Design/methodology/approach: This study uses the secondary data of non-financial industrial and services firms listed on the Muscat Securities Market (MSX) in Oman for a 5-year period from 2017–2021. The study uses generalized least square (GLS) and feasible general least squares (FGLS) regressions to test the hypotheses and find the results. Findings: Results of the GLS and the robust results of FGLS show that OAD has a positive and significant effect on earnings persistence (PER) and value relevance (VR) and the coefficient of VR is stronger than the coefficient of PER, indicating the importance of OAD on the earnings quality as new evidence in the area of accounting. Research Implications: The results provide crucial implications for researchers, investors, policy makers and managers. The study provides potential leverage points for those responsible for shaping the disclosure and transparency because of it insights on when OAD impacts EQ. Originality/value: This study offers a novel resource-based perspective to explain how Omani firms achieve higher sustainable and value relevance earnings by investing in OA. It also provides new evidence about how an ambidextrous firm improves the sustainable and value relevance earnings.

Political connections, board ethnicity and value relevance in Mauritius

PurposeThe paper aims to investigate the impact of political connections and board ethnicity on the value relevance of earnings and book value in Mauritius.Design/methodology/approachThis study is based on a sample of 541 Mauritian-listed firm-year observations for 2001–2016. Financial and board diversity data have been collected using the listed firms’ annual reports and from reports published by the Stock Exchange of Mauritius. Political connection data was derived from the directory of Chief of State and Cabinet members. The research hypotheses were empirically tested using a modified Ohlson (1995) price model.FindingsThis study shows that political connections negatively impact the value relevance of earnings and book value. The authors find that firms with Franco-Mauritian directors will constrain political connections’ negative impact. The authors find contrasting results for Indo-Mauritian directors since they form an integral part of the government in Mauritius.Originality/valueThis study contributes to the scarce accounting literature in Mauritius. Firstly, no study has investigated the relationship between the value relevance of accounting information and political connections in Mauritius. Secondly, Mauritius’s capital market is dominated by a non-indigenous ethnic group, Franco-Mauritians, who remain the economic elite. Hence, Mauritius presents an opportunity to bring forth another important aspect in the capital market and corporate governance; diversity on the board of directors. Therefore, the study extends to the political connections and board diversity literature.

The value relevance of earnings and book value at Vietnamese listed enterprises

Relevant value is important for information users to make business decisions, and stock prices have an essential relationship to the value relevance about enterprises. The paper aims to investigate the earnings and book value influences on the value relevance of 144 Vietnamese listed enterprises. Selected data are non-financial enterprises with a wide range of industries to ensure representativeness on the Vietnamese stock market. The research implements stakeholder and signaling theory to explain the hypotheses of the model related to earnings per share and book value per share. Time series data are analyzed for three years from 2018 to 2020. The quantitative method is applied to test hypotheses. The results determine that the fixed effects model is suitable. The results also show that the earnings per share positively affect the stock price, but book value per share has a negative impact on the stock price. The paper provides some policy suggestions for investors to make reasonable decisions using relevant information about listed enterprises in Vietnam.

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.

Value relevance of earnings and book value of equity in profit versus loss reporting firms: significance of intangible intensity

PurposeThis study aims to investigate how the intangible intensive nature of firms affects the value relevance of earnings and the book value of equity between profit- and loss-reporting firms. The study also examines how firms’ intangible intensity affects the value relevance of R&D outlays between profit- and loss-reporting firms.Design/methodology/approachAn empirical analysis based on Ohlson’s (1995) framework is used. A total of 54,421 firm-year observations of Indian listed firms from financial years 1992–2016 constitute the study sample.FindingsThe findings suggest that the difference in the value relevance of earnings and the book value of equity between profit- and loss-reporting firms is more significant in non-intangible intensive firms than in intangible firms. Specifically, earnings are more value relevant in profit-reporting and non-intangible intensive firms, whereas book value of equity is more value relevant in loss-reporting and intangible intensive firms. The results also suggest that the difference in the incremental value relevance of R&D information between profit- and loss-making firms is higher in intangible intensive firms than in non-intangible intensive firms.Practical implicationsThe findings of this study can help managers, standard-setters and investors make effective decisions.Originality/valueThis study offers insights into the impact of intangible intensity on the value relevance of aggregated and disaggregated accounting information between profit- and loss-making firms in institutional settings where capitalization of R&D expenditures is allowed.