Value Relevance Of Net Income Research Articles

인터넷 종목토론실 게시글과 회계정보의 가치관련성

[Purpose] I empirically analyze the impact of the Naver stock message boards on the value relevance of accounting information.
 [Methodology] I create a Python crawler to collect contents from the Naver stock message boards, and through regression analysis, I show the impact of the number and size of contents on the value relevance of net income, net assets, and research and development expenses.
 [Findings] I find that both the number and size of Naver stock message board contents have a positive impact on the value relevance of net assets and research and development expenses.
 [Implications] This study holds significance in a situation where contrasting opinions exist regarding the informativeness of stock message board posts. I show that in the process of accounting information being reflected in stock prices, contents of the stock message boards play a positive role as informative content.

Value relevance of compliance with IFRS 7: evidence from Canada

PurposeThis paper aims to test whether the extent of compliance with International Financial Reporting Standards (IFRS) 7 requirements is value relevant and whether it influences the value relevance of the firm's accounting information (book value of shareholders' equity and net income).Design/methodology/approachThe sample for this paper consists of 288 financial institutions listed on the Toronto Stock Exchange (TSX) from 2016 to 2019. Panel regressions have been used in this study.FindingsThe findings reveal that compliance with IFRS 7 is positively associated with the firm's market value. After making a classification between high-compliance and low-compliance companies, the authors' results indicate that the compliance level is positively associated with the value relevance of net income. Surprisingly, when examining the value relevance of financial instruments disclosures (FID) supplied after the adoption of IFRS 9, the authors find that book values of shareholders' equity and earnings are not more value relevant in the post-IFRS 9 period.Research limitations/implicationsGiven that the authors' analysis has been restricted to the Canadian setting, the regression results might not be generalized for other countries with different capital markets features.Practical implicationsThe authors' findings point out that FID can affect investors' decisions as well as their confidence in the companies in which they invest. Hence, the regulatory bodies should gear more efforts to ensure high-compliance levels.Originality/valueTo the best of the authors' knowledge, this research is among the first attempts to investigate whether the new FID (after the adoption of IFRS 9) improves the firm disclosure quality and enhances the value relevance of accounting information.

Representation and value relevance of net income versus comprehensive income on millennials’ financial decision-making

PurposeFinancial representation research has gained considerable attention among researchers. The argument is on representation preferences and the effect of graph versus text representation of financial data. The display format for net income (NI) and comprehensive income (CI) has been proven to influence users’ financial decision-making process, depending upon users’ characteristics. It is worth noting that millennials are users whose characteristics and cognitive skills differ from those of preceding generations. This study aims to unravel millennials’ preferences for the earnings information and representation when making financial analysis and judgement, thus providing insight on their decision-making strategy, either perceptual or analytical.Design/methodology/approachThis study used a 2 × 2 full factorial of experimental design, in which the financial representation in the following two ways: the textual disclosure content (NI versus CI) and the graphical display content (NI versus CI) was manipulated. This study conducted an online experiment with a total of 60 final participants.FindingsThe results reveal that textual disclosure of CI influences millennials’ financial decisions. This study also discovered that millennials’ financial decisions are unaffected by graphical displays of financial data as they place greater importance on textual financial data, particularly on CI representations, when making financial decisions.Research limitations/implicationsMillennials are financial users who apply different financial analysis and judgement strategy from their predecessor. They value textual disclosure and CI when analysing firms’ performance.Originality/valueThis study contends that millennials are the financial users who will use analytical strategies while making financial decisions.

The value relevance of comprehensive income under alternative presentation formats permitted by ASU 2011-05

Under Accounting Standards Update 2011-05, firms can present comprehensive income (CI), defined as the sum of net income (NI) and other comprehensive income (OCI), in a single continuous statement or two separate, consecutive statements. We identify whether firms use the one- or two-statement approach for the years 2012–2015 and assess the value relevance of CI, NI, and OCI under the alternative approaches. We find that NI is less value relevant under the one-statement approach relative to the two-statement approach, while the value relevance OCI is marginally enhanced. We also find that the decrease (increase) in value relevance of NI (OCI) under the one-statement approach is driven by a decrease (an increase) in the value relevance of operating income (unrealized gains/losses on securitized assets). Additional analyses demonstrate that the reduced value relevance of NI under the one-statement approach persists only in subsamples that report positive OCI. Our findings suggest that, consistent with arguments put forth in comment letters in support of the one-statement approach, increasing the prominence of OCI may result in investors incorporating this information to a greater extent in their valuation decisions. However, consistent with comment letters in opposition to the one-statement approach, we also present evidence that suggests presenting OCI in the same statement as NI may also draw attention away from the portion of NI that reflects the core operations of the firm.

Value Relevance of net income, other comprehensive income, and comprehensive income in Brazil

This paper uses the Ohlson Model to analyze whether Net Income (NI), Other Comprehensive Income (OCI), and Comprehensive Income (CI) are value relevant for market value and the return of shares of publicy-traded Brazilian companies. To maximize the robustness of the results, we inserted the following control variables for each model: equity per Share (EqPS), Size (S), Industry (I), EBITDA per Share (EbPS), Revenue per Share (RePS), Liquidity (L), and Gross Domestic Product Growth (GDPG). The control variables S, RePS, and GDPG were significant for the three models related to the value of the company. The control variables EqPS, EbPS, RePS, and L, on the other hand, were only significant for the three models related to stock returns. Our main variables (NI, OCI, and CI) were found to be statistically significant in five of the six regression models after data analysis in a fixed effect panel using robust standard errors. However, only the variables NI and CI were considered to be relevant in the expected direction, meaning that they offered a positive contribution in explaining the value of the company.

Enhanced Disclosure of Other Comprehensive Income and Increased Value Relevance of Net Income: The Impact of Accounting Standards Update 2011-05

Accounting Standards Update (ASU) 2011-05 eliminates the option to present other comprehensive income (OCI) in the statement of changes in stockholders’ equity. This study empirically investigates whether this mandatory change of OCI presentation format achieves FASB’s stated objective of improving the transparency of financial reporting. First, ASU 2011-05 is found to greatly reduce the continuity of OCI from one period to the next. As OCI items are transitory in nature, the increased OCI volatility makes firms’ inherent risk more transparent to investors. Second, ASU 2011-05 is found to significantly increase the ability of net income to influence stock prices. As OCI and net income are intertwined, the more salient presentation of OCI enables investors to better interpret earnings. Supporting FASB’s position that OCI items need to be more prominently displayed, these findings suggest that the new standard improves transparency and usefulness of the reported OCI information.

Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil

ABSTRACT This paper aims to investigate the existence of heterogeneity in earnings quality between different classes of companies after the adoption of the International Financial Reporting Standards (IFRS). IFRS adoption is generally associated with an increase in the quality of financial statements. However, companies within the same country are likely to have different economic incentives regarding the disclosure of information. Thus, treating companies equally, without considering the related economic incentives, could contaminate earnings quality investigations. The case of Brazil is analyzed, which is a country classified as code-law, in which tax laws determined accounting practice and in which IFRS adoption is mandatory. First, Brazilian companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) were separated into two classes: companies issuing American Depositary Receipts (ADRs) before IFRS adoption and companies that did not issue ADRs until the adoption of IFRS. Then, this second class of companies was grouped, using cluster analysis, into two different subclasses according to economic incentives. Based on the groups identified, the quality of accounting earnings is tested for each class of the companies before and after IFRS adoption. This paper uses timely recognition of economic events, value relevance of net income, and earnings management as proxies for the quality of accounting earnings. The results indicate that a particular class of companies began showing conditional conservatism, value relevance of net income, and lower earnings management after IFRS adoption. On the other hand, these results were not found for the two other classes of companies.

The effects of IFRS on net income and earnings components: value relevance, persistence, and predictive value

ABSTRACTWe examine whether the switch to IFRS (International Financial Reporting Standards) has affected the value relevance and persistence of net income. In addition, since IFRS adoption has involved changes in the location of nonrecurring items in the income statement, we also examine whether these changes have influenced the value relevance, persistence, and predictive value of the main income measures. Using a sample of Spanish listed firms, we find an increase in the value relevance of net income and non-significant changes in its persistence after 2005. We also find that nonrecurring items were value relevant in the pre-adoption period and that the operating income is more value relevant after IFRS adoption. This suggests that the significant increase in the value relevance of operating income could be explained by the inclusion in this income measure of former extraordinary and special items. We also observe that the former extraordinary section under SAS (Spanish Accounting Standards) was persistent, whereas the income measure of net profit/loss from discontinued operations under IFRS is neither value relevant nor persistent. We do not find significant changes in the attributes of financial income, but we do observe an increase in the value relevance of other consolidated items and corporation tax after IFRS adoption.

Quality of Accounting Reporting After the IFRS Adoption in Nigeria

This study determined the effect of IFRS on the quality of financial reporting among Nigerian financial firms. The study adopted stock price (Ohlson, 1995) and return (Easton and Harris, 1991) models, that have been commonly used in accounting research. Data were collected from Thompson Reuters (stock price) and Bank Scope Data Streams (net income and total expenses) to determine the relationships. The study found that there is a greater relationship between net income and total expenses with the stock price and return. Furthermore, the relationships have been statistically significant using Cramer Z-statistic for both stock price and return model. The overal result have shown value relevance of net income, operating expenses, and change in net income and operating expenses has improved as a result of IFRS adoption among Nigerian listed financial institutions. The study implication for the policy makers, standard setters and investors are to give more emphasis on the use of IFRS for all firms even if they are not listed in the stock market as IFRS adoption provided a better quality accounting information than domestic reporting. Besides the relevance of these study findings to security market, the literature has provided greater contributions to fewer market research in African capital market particularly, Nigeria after the IFRS adoption being the first study to carry such study in Nigeria.

Net Income, Book Value and Cash Flows: The Value Relevance in Jordanian Economic Sectors

This paper examines the value relevance of financial statements variables namely net income, book value and cash flows simultaneously relative to Jordanian services and industrial firms for the period from 2000 to 2009. The main findings of this paper are three- dimensional. First, net income is value relevant, while book value and cash flows are irrelevant. Second, net income is more value relevant than book value and cash flows in both sectors. Third, this value relevance is greater in services sector than in industrial sector. The study shows that net income assist more in explaining market values in Jordanian services and industrial firms. Since research on the value relevance of these variables has neglected Jordan (and the Middle Eastern region), the study tries to fill this practical gap. The study is the first in Jordan that examines the value relevance of net income, book value and cash flows simultaneously and compares this value relevance according to Amman Stock Exchange sectors in one study in Jordan.

The Effect of Earnings Management on the Value Relevance of Accounting Information

This study investigates whether opportunistic earnings management affects the value relevance of net income and book value in determining stock price. We document a decrease in the value relevance of earnings in the year of an equity offering for a group of firms with ex post evidence of earnings management. This decrease is greater for the discretionary component of earnings than for the non‐discretionary component. These results are robust to model specification and the type of offering. However, the results are sensitive to firms’ disclosure activity prior to the offering.