Value Relevance Studies Research Articles

Adoption of new accounting information in nigeria: is accounting information more relevant?

This paper discussed whether accounting information has an incremental value relevance among Nigerian financial institutions. The study is motivated by the Report on the Observance of Standard Code (ROSC) of 2014 and 2011, which report that Nigerian accounting reporting has been marred with non-compliance, non-update, and nondisclosures of accounting information. These have contributed to the sudden fall of the Nigerian stock market from 2008 to 2009 and Nigerian financial institutions that made investors lose confidence in the Nigerian capital markets. This situation provided an opportunity to study the value relevance of accounting information among Nigerian financial institutions. The study uses 52 listed financial institutions in Nigeria. The stock price model used in value relevance studies is employed for data analysis. Data is collected from Bank Scope and Thompson Reuters Data Stream. The study findings provide more value relevance of accounting information under IFRS. Furthermore, assets and liabilities provide positive and negative significant relationships with stock returns, respectively. Lastly, the study provides evidence of the value relevance of accounting information after adopting IFRS.

Adoption of new accounting information in nigeria: is accounting information more relevant?

This paper discussed whether there is an incremental value relevance of accounting information among Nigerian financial institutions. The study is motivated by the Report on the Observance of Standard Code (ROSC) of 2014 and 2011, which report that Nigerian accounting reporting has been marred with non-compliance, non-update, and non-disclosures of accounting information.These have contributed to the sudden fall of the Nigerian stock market from 2008 to 2009 and Nigerian financial institutions that made investors lose confidence in the Nigerian capital markets. This situation provided an opportunity to study the value relevance of accounting information among Nigerian financial institutions. The study uses 52 listed financial institutions in Nigeria. The stock return model used in value relevance studies is employed for data analysis. Data is collected from Bank Scope and Thompson Reuters Data Stream. The study findings provide more value relevance of accounting information under IFRS. Furthermore, assets and liabilities provide positive and negative significant relationships with stock returns, respectively. Lastly, the study provides evidence of the value relevance of accounting information after adopting IFRS.

Value Relevance of Intangible Assets Recognized in a Business Combination

Objective: To verify the value relevance of intangible assets recognized in a business combination of Brazilian publicly traded companies.Method: The sample of 165 companies, covering 962 observations, from 2010 to 2017, was analyzed using five panel data regressions based on Ohlson’s model (1995; 2005) to test four research hypotheses.Originality/Relevance: Value relevance studies have analyzed goodwill, but there are gaps this study seeks to fill. The study addresses the value relevance of intangibles assets recognized in a business combination for the stock market, exploring goodwill and other types of intangibles recognized in a business combination. Also, IFRS 3 was discussed in 2015, bringing the stock market’s perspective and the standard application to the center of accounting research.Results: The results showed that goodwill represents 23% to 30% of intangible assets recorded in the balance sheet, while other intangibles identified represent around 5.6%. As for value relevance, it was observed that both the recognized value of the intangible assets and, when segregated in goodwill and in identified intangible assets, were significant and positively related to the market value. Concerning the nature of intangibles recognized in business combinations, some of them were related to market value.Theoretical/Methodological contributions: The research contributes to value relevance literature on business combinations, allowing us to understand that they are relevant to the stock market and contribute to Brazilian companies’ market value.

A study of value-relevance and reliability of intangible assets: What do we know from the restaurant industry?

Despite the importance of intangible assets in firm valuation, the value-relevance and reliability of intangibles remain unclear. Specifically, intangible assets are critically important to restaurant firms because of the intangible nature of their core services. Thus, this study examined the value-relevance and reliability of intangible assets in the restaurant industry. The results of this study confirmed that goodwill and identifiable intangible assets had significant value-relevance and reliability in association with firm value creation. The results also suggested that intangible assets are significantly related to restaurant firm value, implying that restaurant investors can rely on the intangible information on balance sheets when considering future investments. However, this study found that franchising has a positive moderating effect on the relationship between goodwill and market-based/accounting-based firm value measures, but it does not moderate the relationship between identifiable intangibles and restaurant firm value. This means that the value created by franchising is not fully reflected in the valuation of goodwill, while identifiable intangibles are fairly well valued or at least are not closely related to the value created by franchising. Consequently, the value relevance and reliability of non-franchise restaurants were confirmed. In contrast, although the value reliability of franchise restaurants was confirmed, the value relevance of franchise restaurants was not fully supported.

Do fair value measurements affect accounting-based earnings quality? A literature review with a focus on corporate governance as moderator

This structured literature review of 48 archival-based studies investigates the influence of fair value measurements on earnings quality and stresses the moderating impact of corporate governance. We focus on accounting-based earnings quality measures that have several advantages for investigating agency-related earnings management behavior compared to market-based measures (e.g. value relevance studies). Fair value measurements are not restricted to specific industries, periods, circumstances, or items in our sample. Based on the applied earnings quality measure, the reviewed articles are structured into five categories: (1) earnings persistence and predictive ability, (2) discretionary accruals, (3) target beating and properties of analysts’ forecasts, (4) earnings variability, and (5) other earnings quality measures. We indicate three key findings: first, fair value measurements show mixed earnings quality; second, lower-level fair value measurements decrease earnings quality; and third, corporate governance measures enhance earnings quality. After that, we deduce six research questions for future research. We show possible extensions to previous research designs in methodology and settings. Future research should also focus on corporate governance variables to a greater extent, especially compensation and board structures. Thereby, we suggest extending the neoclassical view with behavioral aspects.

Comparative study of Ohlson and cash flow discounting models in the prediction of the stock price

Two models derived from the dividend discount model attracted the attention of researchers: the residual income model (RIM) and the Ohlson model. These models are said to be dualistic since they combine both aspects of the economic and accounting vision. We propose, in our study, to test the performance of the dualistic evaluation model and to show the importance of accounting information. To do this, we will calculate the value of a listed company according to the actuarial valuation model, namely: the available cash flow discounting model (DCF) and the Ohlson model as a dualistic model. Then, we will determine, based on the expectation and the variance of the signed prediction error (SPE), the model that comes closest to the market price in the case of a Tunisian listed company. The results found in the Tunisian context show the superiority of the Ohlson model in the prediction of stock market prices. This model underlies the traditional belief that the company value is compounded of two main parts: the net value of the investment made in it (book value) and the present value of the period benefits (earnings) that together bring the “clean surplus” concept of the shareholders’ equity value. Specifically, Ohlson (1995) motivates the adoption of the historical price model in value relevance studies, which expresses value as a function of earnings and book values

The influence of mandatory adoption of IFRS in Argentina on value relevance of accounting information

ABSTRACT This study investigates the effect of mandatory adoption of International Financial Reporting Standards (IFRS) on the value relevance of accounting information in Argentina, which originated via the regulation that required all public non-financial companies to change the accounting standards, for fiscal periods starting in January 2012. As with most value-relevance studies, this research employs the Ohlson Model to examine the empirical association between equity prices and two main accounting variables: Net Earnings (representing the Income Statement) and the Book Value of Equity (representing the Balance Sheet). Panel data for 40 companies over a period of 23 years, from quarterly financial reports published by the Buenos Aires Stock Exchange (BCBA), are examined. The reported results suggest that mandatory adoption of IFRS in Argentina does not improve the value relevance of any of the tested variables. On the contrary, after the switch in accounting standards, the accounting numbers present a weaker association with the stock price.

A study of value relevance of accounting and non-accounting information

This study investigates the value relevance of accounting and non-accounting information in the Colombo Stock Exchange, with a view to determining whether accounting information and non-accounting information has the ability to capture data that affect share prices of companies listed on the Colombo Stock Exchange. The required accounting information and non-accounting information are obtained through banks annual reports and data library published by Colombo Stock Exchange. Value Relevance is examined by partially replicating and modifying Ohlson's Value Relevance Model. The Regression analysis is used for evaluating information content of various accounting numbers and non-accounting information. The results revealed that accounting information of BVPS and OCFPS has strong positive correlation with Share Price. And also, it revealed that the non-accounting information of Local number of shareholders, Market Capitalization and Age of the Company has strong positive correlation with Share Price.

Fair Value Accounting for Financial Assets. A Value Relevance Study in an Emerging Economy

There are few areas in accounting which generate debates as intense as measurement, and in particular fair values, because they directly impact the figures reported, as well as their credibility and relevance. The main argument in favour of fair values is that these are providing relevant information to the market participants. The main objective of our paper is to analyze if fair values reported by Romanian companies in their financial statements (more precisely in the case of financial assets) are value relevant. We therefore contribute to the little developed body of literature on the value relevance of fair value in emerging markets. We employ a model which is similar to that proposed by Barth (1994), based on the relation between the bank’s market value and its net assets, separated into financial assets and net asset before (excluding) financial assets. Furthermore, we also analyze whether value relevance of fair value accounting for financial assets varies with the three levels of the fair value hierarchy. Consistent with Barth (1994), we find that financial reporting at fair value of the financial assets has a greater explanatory power of the share prices compared to the historical cost reporting. Partially consistent with Song et al. (2010), we also document that financial assets reported at fair value within level 1 are value relevant, while financial assets of level 2 and level 3 are not value relevant.

How Should the Value Relevance Research Employ Book Value of Equity

Purpose – This study analyses how the mechanical interdependency affects the value relevance inferences by considering the Price Model. Design/methodology/approach – As the Price Model employs reported earnings together with book value of equity (BVE), it induces a mechanical interdependency since earnings are partially integrated to BVE via the net income available to owners of parent item. We suggest researchers subtract this item from BVE prior to analyses. We perform analyses by employing the Price Model with the unadjusted (or reported) version BVE and the Price Model with the adjusted version of BVE. Findings – The Price Model with unadjusted BVE figures generates value irrelevant earnings figures which is contrary to expectations. However, as per our suggestion, after adjusting BVE for the net income available to owners of parent item, earnings become value relevant. Discussion – Although no mechanical interdependency does exist at conventional statistical significance levels, researchers should know data they work in value relevance studies as both independent variables of the Price Model is partially integrated which may yield incorrect value relevance inferences.

Comparative Study of Value Relevance of Financial Information in the Oil and Gas and Manufacturing Sectors in Nigeria

This paper conducted a comparative study on the value relevance of accounting information in the Oil and Gas and manufacturing sector using five quoted companies which were randomly selected from each of these sectors. Data were collected on the Market Price per Share, Earning per Share and Book Value of Equity for the period 2014 to 2018 from the annual financial reports of the selected companies. We hypothesized that Value relevance in the oil sector do not have more significant effect on the earnings per share in the manufacturing sector and, also that Value relevance in the oil sector do not have more significant effect on the market price per share in the industrial sector. We regress book value of equity on both market price per share and earnings per share on the two sectors under consideration using simple linear regression techniques. The regression results revealed that accounting information of the companies in the industrial sector is more relevant compared to the financial information disclosed by companies in the Oil and Gas sector. The study recommends that the regulators of the market should carry out yearly Cross-sectional studies to ascertain the trend and include this comparison requirement as one of the yardsticks of measuring performance. Keywords: value relevance, earnings per share, book value of equity DOI: 10.7176/RJFA/11-12-03 Publication date: June 30th 2020

The Network Structure within the Financial Statements: An Exploratory Study Using Eye-Tracking Through the Lens of Network Theory

Value relevance literature suggests that investors are primarily interested in earnings information that can help investors assess equity value. Thus far, most researchers have concentrated on the aggregate level in the relationships between information in the financial statements and the value of the firm. This paper advances the study by exploring what financial statements items that have value relevance to individuals. We examine the value relevance by using the financial statement users’ visual attention data. We ground our model on network theory and employ the eye-tracking technique to examine the centrality of financial statements items. Compare to previous value relevance studies; our method employs a more direct way of investigating the relationship between the financial statement items and the investment decision. We find that most earnings items are the “celebrity actors” or the nodes of individuals’ attention that are relevant to individuals’ investment decision. Our findings corroborate the FASB statement that financial items are interrelated and should not be used independently. We provide new evidence for FASB and IASB to continue their joint project on restructuring the financial statements.

The Quality of Accounting Information: Relevance or Value-Relevance?

Research aim: This paper critically evaluates the qualitative characteristics of accounting information that can be drawn from the Financial Accounting Standard Board (FASB)/International Accounting Standard Board (IASB) Conceptual Framework and Value-Relevance studies that are motivated by users of accounting information. Design/Methodology/Approach: This study reviews the value-relevance literature and Statement of Financial Accounting Concepts (SFAC) No. 8, which was issued by FASB in September 2010 in order to make a distinction between them. Research findings: The value-relevance literature, which reported the associations between accounting numbers and common equity valuations, has limited implications or inferences for accounting information users. Although some scholars believe that the value relevance model indicates that accounting information is relevant and reliable (faithfully represented), it is, however, difficult to attribute the cause of the lack of value relevance to the relevance or the reliability aspects as the value relevance model does not distinguish between relevance and reliability. Theoretical contribution/Originality: This study provides some recommendations and a framework for future academic research related to the qualitative characteristics of accounting information (especially earnings) and value-relevance models. Practitioner/Policy implications: According to the conceptual framework defined by the FASB and IASB, relevance and faithful representation, as fundamental qualitative characteristics, are required for the provision of the usefulness of accounting information, and should be taken into consideration by scholars and standard setters in the accounting area. Research limitation/Implication: This paper does not have a direct impact on practice. But, if the standard setters and researchers apply the concepts have been defined by this study in their accounting standards and their research, respectively, the results of those standards or research can be finally useful for the practice, especially for the investors. Keywords: Accounting Information, FASB/IASB Conceptual Framework, Value-Relevance, Relevance, Faithful Representation Type of manuscripts: Literature review JEL Classification: M480

Forward-Looking Information Based on Integrated Reporting Perspective: Value Relevance Study in Indonesia Stock Exchanges

Forward-Looking Information Based on Integrated Reporting Perspective: Value Relevance Study in Indonesia Stock Exchanges

The Usefulness of Regulatory Capital for Investors’ Judgments in the Basel 3 Framework

Value relevance studies assess how well accounting amounts reflect the market information that investors use for their economic decisions. Analysing a sample of 90 banks listed in 24 European stock markets, this study uses a price model (Ohlson, 1995) and provides evidence that a risk-sensitive metric like regulatory capital is more useful for investors’ decisions than book value of equity and that investors price the parts of regulatory capital that are devoted ideally to absorb losses differently due to the different risks taken. In particular, the part devoted to absorb losses due to credit risk is priced higher than the parts devoted to absorb other risks (e.g. market risks, operational risk). According to our evidence, this is due to the business model of the entities analysed, which are mostly retail and wholesale banks with significant credit exposure to clients and other banks. The paper adds to the literature and has implications for regulators and standard setters showing that the assessment and disclosure of regulatory capital not only strengthens the soundness and the stability of the international banking system (Basle Committee on banking supervision, 1988), but provides to investors useful information for their future investment strategies.

How Does Unobserved Heterogeneity Affect Value Relevance?

AbstractMost value relevance (VR) studies consider an accounting item value relevant if the regression coefficient (RC) of that item is statistically significant. Unobservable heterogeneity leads to biased RCs, interpretation of which generates incorrect inferences. To obtain unbiased RCs, the effect of unobservable heterogeneity on RCs should be mitigated. As two dimensions of unobservable heterogeneity are at the firm level and time level, outcomes with the following unobservable heterogeneity concerns are discussed: i) no fixed‐effects (FE); ii) firm FE; iii) time FE; and iv) two‐way (firm and time) FE. By employing a sample of Turkish firms from 2005–2014, we report several findings. First, we find that regressions with firm (time) FE yield large (low) RCs vis‐à‐vis regressions with no FE, and regressions with two‐way FE generate balanced RCs compared to the others. Second, we compare RCs with i and iv, and conclude that the book value of equity becomes more value relevant while net income does not after controlling for unobservable heterogeneity. Last, we arbitrarily divide the entire period into two to reveal how unobserved endogeneity affects the comparison of RCs belonging to different periods. Our outcomes robustly reveal that unobserved endogeneity leads to erroneous RC comparisons.

외화환산 정보의 가치관련성에 관한 연구: K-IFRS 도입과 산업특성을 중심으로

외화환산 정보의 가치관련성에 관한 연구: K-IFRS 도입과 산업특성을 중심으로

Value Relevance of available-for-sale financial instruments (AFS) and revaluation surplus of PPE (REV) components of other comprehensive income

Value relevance studies have thus far provided mixed evidence. Studies also found that fair value reporting has a significant impact on the value relevance of other comprehensive income. Additionally, most studies on value relevance of other comprehensive income focused on developed countries where the capital market is more efficient. In these settings due to the existence of active market, fair valuation of assets may not pose a major problem. In Malaysia the mandatory reporting of comprehensive income by all listed firms based on the requirement of FRS101, coincides with the adoption of FRS139 the standard for financial instrument and could be an interesting setting to investigate. This study hypothesized that other comprehensive income and its components are associated with share price. The results indicate that other comprehensive income and its components are value relevant. The results indicate that the move towards a more comprehensive income reporting through the preparation of the Statement of Comprehensive Income results in more informative financial reporting.

A Study of Value Relevance of Corporate Governance and its Impact

In the present age of stiff competition across the globe, organizational effectiveness is dependent on how well they are utilizing the available resources. Corporate governance helps not only in Effective utilization of human resource but also in directing and controlling the organization. Though the corporate governance is known as a mechanism or system, by which companies are directed and controlled. In other words effective corporate governance may result in efficient operation and effective performance of the Organizations. Corporate Governance makes it very clear what are the rights and responsibilities of different stakeholders, participants, employees in the Corporation. It helps in providing effective structure which set and pursue their objectives. Another important aspect of the governance which is largely seen in the corporate is the nature and extent of accountability monitored. This research paper has discussed the value of the corporate governance in the corporate efficiency and effectiveness and also impact on Executive Compensation. The main aim of this paper is to examine the value relevance of corporate governance in organizational effectiveness and also to study its impact on overall Performance. Primary as well as secondary data will be used for this paper. Primary Data will be collected using a structured self-administered questionnaire. Using convenient sampling 50 full time executives were chosen as the study respondents. Secondary data has also been used in this research from Journals, Magazines, Research Papers, Reports, Magazine, Newspapers, websites etc. This study will contribute knowledge about Corporate Governance and its value in the organizational efficiency and development. This will also share the knowledge about the impact of corporate governance on having effective executive compensation practices in the organizations for better control, supervision and performance as well.

Earnings persistence and stock prices: empirical evidence from an emerging market

Purpose – This study aims to investigate the persistence ability of accounting variables, namely, abnormal earnings, book value, accruals and cash flows over a period of time and their valuation relevance in Indian scenario. Design/methodology/approach – The study utilizes the generalized version of the Ohlson model which links market prices with abnormal earnings, book value and earning components (accruals and cash flows). Fixed-effect panel data regression is used to analyze six years of data on the sample units to determine the persistence and valuation relevance. Findings – The findings provide evidence on the construct of persistence and value relevance of earnings and book value of equity in the Indian context. The findings further confirm that investors in India are fixated on earnings and fail to attend separately to the cash flow and accrual components of earnings while undertaking their investment decisions. Practical implications – The empirical findings of the study will enable the analysts and investors to understand the relevance and persistence of accounting variables in case of an emerging market like India. Originality/value – The study extends the extant literature on value relevance studies in developed markets to an emerging market like India and enriches it in several ways.