Relevance Of Earnings Research Articles

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.

RELEVANSI NILAI INFORMASI AKUNTANSI : STUDI KASUS PADA SAHAM INDEKS LQ45 TAHUN 2021-2022 DI BEI

This research aims to test the relevance of the value of accounting information including the relevance of earnings (EPS), the relevance of book value (BVEPS), the relevance of Return on Equity (ROE), and the relevance of the profit ratio from operational activities (NPM) simultaneously and partially using the stock price index model. LQ45 2021-2022 on the Indonesian Stock Exchange. The relevance of the value of this accounting information will later influence investors' decisions in choosing and investing their funds, especially in LQ45 shares. Sample selection used a purposive sampling technique which resulted in 82 samples. The test uses a multiple linear regression model and the test results show that EPS and BVEPS accounting information has value relevance because it has a significant effect on stock prices, but ROE and NPM information does not have value relevance because it does not have a significant effect on stock prices. BVEPS has a dominant influence on share prices in companies listed in the LQ45 index for 2021-2022 on the Indonesian Stock Exchange.

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.

Consequences of the Financial Markets Authority Guidelines on the Relevance of Non-GAAP Earnings

In this paper, we investigate the consequences of the FMA guidelines on the relevance of non-GAAP earnings (NGE). These guidelines require firms NGE to conform to a certain code of practice to improve transparency and comparability. From our sample of 441 NGEs disclosed over the period 2011-2017, we find a decrease in the relevance of NGE after the FMA guidelines were implemented. Nonetheless, we find that market participants reward NGE disclosed after 2015, when they are accompanied by “better quality” communication (i.e. compliance with the FMA guidelines). Also, we find a decrease in analysts’ forecasts dispersion after 2015, suggesting a reduction in information asymmetry following the application of FMA guidelines.

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

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

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 Inflation Affect Earnings Relevance? a Century-Long Analysis

Does Inflation Affect Earnings Relevance? a Century-Long Analysis

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.

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.

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.

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.

All losses are not alike: Real versus accounting-driven reported losses

AbstractWe examine the value relevance of accounting-driven losses that result from the immediate expensing of firms’ internally generated intangible investments versus losses occurring irrespective of intangible investments. Contrary to the long-held view that losses are less relevant than profits for valuation, we find that once the accounting bias of intangibles-expensing is undone, earnings of firms reporting intangibles-driven losses are as informative as earnings of profitable firms. Furthermore, contrary to the view that persistent losses decrease earnings relevance, our evidence shows no decrease in the relevance of earnings for firms reporting persistent intangibles-driven losses. We also find that firms reporting intangibles-driven losses subsequently outperform other loss firms and even profitable firms in value creation from investments in technological innovation and human capital. Our evidence further shows that firms reporting intangibles-driven losses have stronger future performance than other firms. Taken together, the results of this study demonstrate the fundamental differences between losses driven by the immediate expensing of internally generated intangible investments and losses reflecting genuine business performance shortfalls. Standard accounting performance measures, however, do not properly reflect these operational differences and their implications.

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

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.

IFRS-16 and Information Quality of Listed Non-Financial Firms in Nigeria

Lease accounting was revised in 2016 due to the contentious nature of its reporting in the financial statements under IAS 17- particularly in respect of operating leases. IAS 17 was criticized for impairing the quality of accounting information due to the inappropriate treatment of identified resources in control and financial obligations by lessee firms. IFRS 16 (effective 2019) eliminates the distinction between operating and finance leases requiring right-of-use assets and associated liabilities to be reported on the Statement of Financial Position. In cognizance of its objective of enhancing information quality, the paper assessed the relevance of accounting information reported subject to compliance with IFRS 16 in the context of listed non-financial firms in Nigeria utilizing lease finance. The Ohlson model was modified to regress share price on the book value of equity per share, earnings per share, and the interaction of these variables with IFRS 16 adoption using a data set for 2016-2021. GLS regression results indicate book value per share to have increased relevance with the adoption of IFRS 16, whereas the relevance of earnings per share remains unchanged. The paper concludes that IFRS 16 adoption enhances the information quality of listed non-financial firms in Nigeria. Recommendations are made for firms to optimize accounting processes to achieve or sustain information quality by adopting IFRS 16. The IASB, as a standard-setter, should also prioritize the cost-efficiencies of standards in their implementation, as this could account for a disparity in the perceived accounting information quality of varying-sized firms).

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.