Value Relevance Of Earnings Research Articles

CEO Social Capital and the Value Relevance of Accounting Metrics

Equity investors value CEO social capital when pricing firm equity. When CEO social capital is high, the value relevance of the book value of equity declines, whereas the value relevance of earnings measures increases. Results are stronger for firms in high-tech industries where information asymmetries are higher. Social capital may be deconstructed into informational and reputational effects and we report that social capital is a meaningful determinant of value relevance in both scenarios. Results are robust to alternative variable definitions, controls and tests for endogeneity. The results strongly suggest that CEO social capital improves the information environment around firms, benefiting users of accounting metrics.

Value relevance of IFRS 9 adoption: A case study of Indonesian banking companies

Research aims: This study examines the effect of allowance for impairment losses (CKPN) on value relevance.Design/Methodology/Approach: This research employed quantitative data using secondary data from banking financial reports derived from www.idx.co.id during 2019-2021. Also, this study used stock price data sourced from www.finance.yahoo.co.id. The use of data for 2020 was due to the first year of PSAK 71 implementation. While data for 2019 were employed to compare the year before the PSAK 71 implementation, and data for 2021 were used to compare the PSAK 71 implementation in the second year. Data testing was then performed utilizing multiple linear regression analysis for cross-section data.Research findings: This study suggests that CKPN was positively associated with the value relevance of earnings in the first year of PSAK 71 implementation.Theoretical contribution/Originality: This research is expected to complement the financial accounting literature on adopting IFRS 9, especially in Indonesia, which is rarely discussed in previous studies.Practitioner/Policy implication: This study is expected to be employed by the Indonesian Financial Services Authority in improving policies on financial stability in the capital market based on applying financial accounting standards.Research limitation/Implication: This study only employed data on banking sub-sector companies listed on the Indonesia Stock Exchange, which were relatively small in number. Future research can therefore use data from all financial companies in Indonesia or banking companies in other countries related to IFRS 9 implementation to compare the test results with this study.

Value relevance of accounting information in an emerging market: the case of IFRS adoption by non-financial listed firms in Saudi Arabia

PurposeThe paper aims to provide empirical evidence of the impact of IFRS adoption on the value relevance of accounting information in the emerging market of Saudi Arabia.Design/methodology/approachThe sample consists of 98 non-financial listed firms operating in Saudi Arabia from 2014 to 2019, representing the years before and after IFRS adoption. The authors apply basic and extended price models to examine the value relevance of select accounting figures.FindingsThe authors findings provide evidence that accounting information is, generally, value relevant to the Saudi Arabian capital market. However, mixed results exist for particular accounting variables. Both earnings and cash flows are value-relevant in the period before and after IFRS adoption; equity is only relevant in the post-adoption period. Furthermore, IFRS adoption also increases the explanatory power of earnings. An increase in the value relevance of earnings and equity hurts the value relevance of cash flows. The effects are moderated by leverage and dividend policy.Originality/valueThe authors contribute to the ongoing discussion of the economic effects of IFRS adoption in emerging markets. The empirical findings show that initial concerns about IFRS adoption, as reflected by the negative coefficient within the regression analysis, are mitigated once the usefulness of the individual accounting variables published in financial statements is investigated.

The information content of mandatory and discretionary non-GAAP earnings

PurposeThis paper aims to investigate the pricing of discretionary earnings in South Africa. This is a unique setting, as South African listed firms also report mandatory non-GAAP earnings (“headline earnings”).Design/methodology/approachResults are based on multivariate regression analyses for South African firms that report from 2010 to 2019.FindingsFindings show that the value-relevance of discretionary earnings exceeds that of both GAAP earnings and headline earnings. In addition, placement of discretionary earnings reconciliations communicates information about the decision-usefulness of earnings.Originality/valueDiscretionary earnings remain the most value-relevant earnings measure, despite the divergent decision-useful characteristics offered by headline earnings and GAAP earnings. Therefore, the most decision-useful earnings reflect unique industry or firm characteristics rather than the assurance arising from regulation.

Can the transmission of entrepreneurs' We Media information improve the value relevance of earnings? Evidence from China

PurposeFollowing the growing adoption of social media, many entrepreneurs are launching personal social media channels. This study focuses on the effect of entrepreneurs' shared information on We Media platforms on the value relevance of their earnings.Design/methodology/approachUsing entrepreneurs' We Media data collected from A-share-listed companies on the Shanghai and Shenzhen Stock Exchanges from 2010 to 2018, this study investigates the effect of the data on the value relevance of earnings using the modified Ohlson model. The authors applied textual analysis to retrieve entrepreneurial We Media data acquired manually from Weibo.FindingsWe Media platforms can increase the value relevance of earnings. Entrepreneurs can enhance investor trust by establishing social ties with investors. Investors are more likely to recognize earnings information publicized by enterprises, owing to internal consistency. Particularly, value relevance improves significantly with more personal information being posted and more “likes” being acquired on entrepreneurs' We Media accounts. This positive effect is more obvious in privately owned and highly marketized regions.Originality/valueThe findings extend the research on the economic consequences of We Media as an important information channel, enrich the research on the social media posting behavior of entrepreneurs and provide a reference for enterprises to instill trust using new information disclosure methods and for governments to establish a safe internet environment to promote the sustainable development of the capital market.

COVID-19, firm performance, and the value relevance of earnings

In the wake of the COVID-19 crisis, there has been a growing interest in investigating how stock markets behave during times of uncertainty and crisis. This is because it has been shown that stock prices seem to disconnect from fundamentals during moments of extreme uncertainty. Using earnings and returns data from publicly traded corporations for the twelve months beginning January 1, 2020, we assessed the performance of major industrial sectors during COVID-19. We also investigated the concurrent earnings/returns relation to discover whether earnings changes convey useful information during times of high uncertainty. Following prior literature along similar lines, we used firm-level earnings and returns data and estimated cross-sectional regressions to examine the earnings/returns relation. We found considerable variation in the earnings and returns data across and within the industrial sectors. Our results mostly showed a positive relationship between accounting income and concurrent stock returns, implying that accounting earnings numbers were value relevant during the pandemic. Positive earnings news (earnings increases) seemed to generate a greater market response than negative earnings news (earnings drops), leading to a shift in the overall stock market's outlook from negative to positive in the second half of 2020. These findings will help the decision-making of investors, creditors, policymakers, financial analysts, and other stakeholder groups.

RELEVANSI NILAI INFORMASI AKUNTANSI (BOOK VALUE DAN EPS) DAN UKURAN PERUSAHAAN BERDASARKAN NILAI KAPITALISASI PASAR

The purpose of this study is to examine the value relevance of accounting information (Book value and Earning Pershare) and firm size. The size of the company in this study is divided into large companies and small companies based on the market capitalization value. This research was conducted using the model portfolio-returns approach and regression approach. To test the value relevance of accounting information will be translated using a regression approach to stock prices, while to measure the value relevance of earnings per share and book value, the adjusted coefficient of determination (adj R2) is used to the company's stock price. Based on the results of this study, it shows that Book value and Earning Pershare have an influence on the company's stock price. Meanwhile, based on the adjusted coefficient of determination (adj R2) of earnings per share and book value, it shows a strong relationship to the company's stock price. The results of other studies based on company size show that book value and earning percentage in large-scale companies have an effect on the company's stock price. Based on the adjusted coefficient of determination (adj R2) value of Earning Pershare and book value, small-scale companies show a weak relationship strength, and large-scale companies show moderate strength of the relationship.

RELEVANSI NILAI INFORMASI AKUNTANSI DAN MODAL INTELEKTUAL PADA PERUSAHAAN INDEKS LQ45 DI BURSA EFEK INDONESIA

This study aims to analyze the value relevance of accounting which proxied with earnings per share (EPS) and book value per share (BVPS) as well as value relevance of intellectual capital information. The test was carried out on companies that are members of the LQ45 Index Listed on the Indonesia Stock Exchange (IDX) during the 2018-2020 period. The sample selection used purposive sampling technique. The data collection method in this research is the documentation method. Data were analyzed using multiple linear regression analysis. This study found that earnings per share (EPS) and book value per share (BVPS) as well as intellectual capital information has value relevance. This research can support signal theory, clean surplus theory, and resource based theory (RBT) related to the relevance of the value of earnings per share (EPS) and book value per share (BVPS) as well as intellectual capital information. The research has implications for all parties who need information regarding value relevance of earnings per share (EPS) and book value per share (BVPS) as well as intellectual capital information of companies incorporated in the LQ45 Index

The Value Relevance Of Accounting Information On Amman Stock Exchange: The Moderating Role Of Audit Quality

The study aimed to measure the value relevance of return on assets (ROA), return on equity (ROE), earnings per share (EPS), and operating cash flow (OCF) on the share prices of listed firms on the Amman Stock Exchange (ASE) from 2018 to 2022. The research is based on the Ohlson model (1995), derived from valuation theory. The results revealed that all independent variables were positively correlated with share prices. Conversely, the moderating effect of audit firm size negatively impacted the variables. The findings indicated that the value relevance of earnings and operating cash flow had a more significant effect on share prices within the context of the ASE. This indicates that investors prefer short-term investment strategies that priorities quick investment returns. This study contributes significantly to the limited body of research addressing the value and relevance of accounting information within the Jordanian context. Shedding light on this topic offers valuable insights to decision-makers in both firms and the investor community. Specifically, it underscores the importance of considering the effective utilisation of accounting ratios in informing strategic decisions and investment choices.

Tacit vigilance in an emerging economy: An institution-based perspective of passive blockholder monitoring

We argue that the relative effectiveness of active and passive blockholder monitoring is driven by the institutional context of the Korean financial market, characterized by the dominance of chaebols and the pressure sensitivity of institutional blockholders. We believe that the extensive business ties between chaebols and blockholders effectively increase the cost of shareholder activism in Korea, making passive monitoring a more applicable governance mechanism for blockholders. We test whether passive monitoring affects a firm’s earnings quality, represented by earnings persistence, value relevance, and timeliness. Furthermore, we decompose institutional shareholding by portfolio turnover and nationality and then determine the monitoring channel that influences earnings quality. We find that passive monitoring by domestic blockholders is most effective in improving earnings quality in Korea. In addition, our findings highlight that the difference between the institutional context of developed economies and that of Korea results in different outcomes related to blockholder monitoring.

Accounting Information and Value Relevance Nexus: Evidence from Pakistan

This study aims at studying the value relevance of accounting information produced by large companies in Pakistan as there is a dearth of research in linking the returns on securities with accounting information produced by the companies in the Pakistan economy. For this purpose, the data was collected from 170 companies in the non-financial sector for 11 years (2006-2016). Panel data settings were used to regress the accounting information i.e., Earnings with Returns which are calculated using the Returns model. Empirical results prove that Earning figures are consistently value relevant throughout the period but the increase in value relevance of earnings is not significant. It is also shown that investors in Pakistan are giving more importance to Changes in Earnings over a sample period than to Earnings. This study is likely to highlight the importance of accounting information to investors in making their investment decisions.

A New Perspective on Interpreting the Accounting Information of Listed Companies: Research on the Asset Structure Difference and Earnings Value Based on a Sustainable Development Strategic Perspective

The quality of accounting information of listed companies has always been of great concern for investors, creditors, government departments, and other stakeholders. As the core component of accounting information, earnings information is essential, which is hailed as a wind vane by every stakeholder. The sustainable development strategy of companies requires companies to reasonably allocate company resources and promote the long-term and rapid development of the company. Based on the sustainable development strategic perspective, this paper takes Chinese A-share non-financial listed companies from 2007 to 2020 as a sample to study the correlation between asset structure differences and earnings value relevance. The research logic of this paper is: the corporate strategy determines the resource allocation scheme of the company, the resource allocation scheme determines the asset structure, and the asset structure determines the generation mode of profits. Therefore, there are different profit compositions, and the differences in profit compositions lead to differences in the corporate earnings value relevance. The research results show that, overall, compared to the companies with a large proportion of investment assets, the companies with a large proportion of operating assets have a stronger earnings value relevance to their net profit. From the perspective of the main composition of profits, companies with a large proportion of operating assets have a stronger value relevance to their core profits. Companies with a large proportion of investment assets have a stronger value relevance to their investment income. Listed companies’ different asset structures is an essential factor affecting the corporate earnings value relevance. Additionally, listed companies’ different asset structure results from the corporate strategic development choice, which shows that the corporate strategy affects the relevance of the corporate earnings value. This provides a new perspective for accounting information users to interpret the corporate earnings information, helps accounting information users to understand and analyze corporate financial statements more accurately, and has a particular reference significance for investment decision making.

Value relevance of book values, earnings, and future earnings: evidence by time, life cycle stage, and market uncertainty

PurposeThe purpose of this study is to investigate the role of book values, earnings, and future earnings in equity valuation by time, life cycle stage, and market uncertainty using samples of USA and Japanese companies.Design/methodology/approachThis study employs Lubberink and Willett (2021) methodology in using log-linear models to estimate the value relevance of accounting numbers and follows Schaberl (2016) approach to measure %incremental value relevance. The study also includes future earnings in a basic valuation model (Ohlson, 1995) to explore the extent to which stock prices are forward looking.FindingsThis study finds a significant increase by time in the relative value relevance of a combined model with book values and earnings and a combined model with future earnings for both countries. However, the incremental value relevance of book values, earnings, and future earnings remain stable over time. The results by life cycle stage indicate that incremental value relevance of future earnings and earnings are more (less) pronounced for firms in the intro (mature) life cycle stage while the incremental value relevance of book values is highest for firms in the decline stage for both countries. The results by market uncertainty indicate that firms with high market uncertainty display higher incremental value relevance of book values for both countries. The results on future earnings are mixed as USA (Japan) firms with high (low) market uncertainty display more (less) incremental value relevance of future earnings.Practical implicationsThe findings in this study enhance the merits of two basic financial statements (balance sheet and income statement) in a firm's equity valuation for potential investors and existing shareholders and document an additional role of future earnings information in reflecting a firm's stock price, which is beyond what book values and current earnings have already contributed.Originality/valueThis is the first study that uses log-linear models to estimate the value relevance of accounting numbers and investigates value relevance of accounting information in three views: time, life cycle stage, and market uncertainty.

Disentangling Relevance from Reliability in Value Relevance Tests

The literature shows that during the COVID-19 pandemic, the value relevance of earnings decreased. Traditionally, the literature measures value relevance using the relationship between stock returns and earnings. However, these tests are, in fact, “joint tests of relevance and reliability”. This caveat can distort the measurement of relevance, especially during the COVID-19 pandemic where the exceptional level of uncertainty could have affected relevance and reliability to different extents. This study disentangles reliability and relevance by extending the value relevance test. We use this extended test to examine firm categories in two dimensions: profits versus losses and intensive versus scarce use of accounting estimates. The results show that reliability and relevance are complementary when both are sufficiently high, but reliability has no significant impact on the usefulness of earnings when relevance is weak.

The Effect of Fair-value Accounting on the Value Relevance of the Balance Sheet and the Income Statement

The aim of this paper is to examine the value relevance of the balance sheet and the income statement. Specifically, this paper investigates the value relevance of book value of equity compared to the value relevance of earnings in firms that depend more on fair-value accounting. The sample of the study includes all listed firms in the Amman Stock Exchange (ASE), which are classified into two main groups: financial firms and non-financial firms. The results show that the value relevance of the balance sheet for financial firms is higher than that for the income statement. The results also show that firms with lower financial assets depend more on historical accounting and have higher-relevance income statements. The results indicate that the higher the percentage of financial assets, the more the firm depends on fair-value accounting and consequently, the balance sheet becomes more value-relevant to investors compared to the income statement.

VALUE RELEVANCE OF ACCOUNTING INFORMATION: INSIGHTS FROM IRAQ

This research investigates the value relevance of accounting information, namely earnings and book value of equity (separately and aggregately), related to stock market values and stock market returns models, for Iraqi services companies for the four years 2015 - 2018. The paper finds that, related to stock market values model, the value relevance of earnings and book value has increased separately; the value relevance for earnings increased while it is irrelevant for book value when they are associated. In the other hand and related to stock market returns model, the value relevance of earnings either separately or aggregately has increased while that of book value has decreased. Generally, it is shown that earnings figures can importantly demonstrate variances in stock market values and stock market returns compared with book value figures. Moreover, the findings show that earnings and book value separately are more value relevant in stock market values model. Differently, these variables aggregately are more value relevant in stock market returns model. The study finds earnings can widely help in demonstrating the changes stock market values in Iraqi services companies. The value relevance of accounting information using two models of stock market values and stock market returns has not examined before in one study in Iraq.

Causes of country-specific effect related to the value relevance of cash flows and earnings: evidence from France, Germany, Italy and Spain

Causes of country-specific effect related to the value relevance of cash flows and earnings: evidence from France, Germany, Italy and Spain

Shifting from the incurred to the expected credit loss model and stock price crash risk

Using a difference-in-differences (DID) design, this study examines the effect of shifting from the incurred credit loss model (ICL model) to the expected credit loss model (ECL model) on banks’ future stock price crash risk. We find that switching to the ECL model decreases the stock price crash risk of commercial banks. Inspired by Onali et al. (2021), we proceed with cross-sectional tests from the perspectives of opportunistic incentives, information environments, and compliance costs and find that the effect is more pronounced for (i) banks with less opportunistic incentives, proxied by state-owned property rights and managerial ownership; (ii) banks with opaque internal and external information environments, proxied by weak internal control, weak board governance, low analyst coverage, and short auditor tenure; and (iii) banks with lower implementation costs, proxied by less day-one impact and higher levels of accounting conservatism. Channel analyses show that banks increase their asset impairment provisions and the timeliness of loan loss recognition, and there is an increase in the value relevance of earnings and bank efficiency after the adoption of the ECL model. Overall, our evidence suggests that the flexibility of principle-based accounting standards influences banks’ stock price crash risk and provides implications that could be helpful to regulators and standard setters.

An evaluation of the impacts of the adoption of IFRS 15 Revenue from Contracts with Customers

AbstractThis paper evaluates the impact of IFRS 15 Revenue from Contracts with Customers on the value relevance of financial reports for Australian listed firms. We find that for most firms the impacts of transition were immaterial, however some firms experienced a significant reduction in earnings and/or retained earnings and for these firms the value relevance of earnings was generally lower in the pre‐adoption period compared to firms in which there was no material impact. Post adoption, there is little evidence that the standard improved the relevance of earnings generally.

Value Relevance of Earnings and Book Value: Impact of Earnings Management and Family-Owned Firms

The purpose of this study is to investigate whether family-owned firms and earnings management as a result of financial distress affect the value relevance of earnings and book value. The study is based on companies listed on the Indonesia Stock Exchange (IDX). An unbalanced panel dataset of 592 firms trading in the IDX from 2012 to 2017 was used to test the price model. Results reveal that owing to high financial distress, earnings management through an income-increasing strategy was opportunistically conducted. Moreover, earnings management (as opposed to financial transparency, which is a principle of sustainability) decreases the value relevance of earnings. Due to high financial distress, there is a trade-off between the value of earnings and relevance of book value in the presence of earnings management. Further, results demonstrate that the value relevance of earnings in family-owned firms is higher than in nonfamily-owned firms in Indonesia. It indicates that earnings management due to high financial distress contributes to the alignment effect on family firms.