Value Relevance Research Research Articles

Value Relevance Research in Accounting and Reporting Domains: A Bibliometric Analysis

This review systematically investigates the body of scientific knowledge on value relevance in accounting and reporting fields through a mixed method integrating bibliometric and systematic literature review (SLR) instruments. A dataset of 918 journal articles published from 1996 to 2020 was identified and processed by combining different bibliometric instruments. Findings highlight the most influential articles, journals, authors and countries and the most relevant thematic clusters: IFRS introduction and value relevance of accounting data; Capital market, earnings and equity book values; intangibles and non-financial information; Fair value accounting and goodwill. The main insights from the most relevant contributions were discussed for each cluster. Promising research areas and future research opportunities were also outlined. To the best of the authors’ knowledge, this is the first study that integrates bibliometric and SLR instruments to provide a comprehensive outlook of the scientific debate originating from value relevance research.

Respon Pasar Terhadap Informasi Biaya Penelitian dan Pengembangan

Value relevance shows how widely available accounting information can reflect the firm value. Accounting information is relevant if it can influence decision-making. In addition to information on earnings and book value, which are the basic variables in value relevance research, there is other accounting information that can explain the market value of the firms. In this study, other accounting information used is research and development cost and advertising cost that can provide benefits to the company in the future. This study aims to analyze and examine the effect of research and development costs and advertising costs on the market value of the firms. This study is using secondary data observation techniques acquired from annual financial reports for companies in the manufacturing industry sector that are listed on the Indonesia Stock Exchange in the 2011-2020 period. The sampling method used in this research is purposive sampling, with a total of 90 observations. The results of this study partially explain that research and development costs have a positive and significant effect on the market value of the firms, whereas advertising costs have a negative effect. Meanwhile, simultaneously the research and development costs and advertising costs with a control variables affect the market value of the firms. The conclusion of this study explains that research and development costs have a value relevance

The Value Relevance of Earnings, Book Values, and Other Accounting Information and the Role of Economic Conditions in Value Relevance: A Literature Review*

ABSTRACTThe value relevance research in accounting offers robust analyses about how the market views accounting information. Although significant work has been done to date in this mature research area, the literature does not fully explain or agree upon the changes in value relevance over time, and the impact of economic conditions on the value relevance of accounting information is a relatively understudied research stream. We review three streams of the value relevance literature: (i) the value relevance of earnings and book values, (ii) the value relevance of other accounting information, and (iii) the role of economic conditions on the value relevance of accounting information. Further, we review the various explanations put forth in the literature to try to explain the variation in value relevance over time. Finally, we provide a limited baseline for the current state of scholarly work and offer insight for future value relevance research.

Measuring the Value Relevance of Financial Information for Strategic Decision-Making and Performance of Nigerian Listed Firms

Purpose of the article: Management has traditionally used financial information for strategic decision-making. This study investigates the value relevance of financial information contained in earnings per share and operating cash flow per share for strategic decision-making and hence performance. It utilized secondary data extracted from annual reports and accounts of fortythree (43) listed firms on the Nigerian Stock Exchange over the period of 2006–2017. Methodology/methods: The collected data were subjected to analysis using the non-linear symmetric Generalized Autoregressive Conditional Heteroscedasticity (GARCH (1 1)) model, which is capable of handling time varying properties of financial time series to measure the statistical significance of the association between the variables of interest. Scientific aim: The paper is aimed at empirically investigating the value relevance of financial information to ascertain its potency for handling strategic decisions of listed firms in Nigeria. This is to digress from the contextual factors in the decision-making process and construct an integrated link between value relevance research and strategic management. Findings: The study found that earnings per share and operating cash flow per share are individually and jointly value relevant in strategic decisions and performance. Conclusion: It is necessary to pay attention to the financial information system of an organization to enhance the quality of services it can provide to strategic management. It is necessary to pursue the fundamental quality of relevance that guarantees predictive, materiality and confirmatory values and enhancing quality that measures usefulness by both management and regulators.

Constructing a Simple Valuation Method Based on a Value Relevance Model

Prior valuation studies have developed and improved valuation models. However, these models are often difficult to use, because estimating their various factors requires lots of skills and experience. Thus, this study aims to provide a simple valuation method for the listed firms based on value relevance research. Using the annual data of the listed firms in 87 countries, we present the usefulness of the basic value relevance model for international investment. After confirming that market value of equity can be explained by book value and actual net income, we demonstrate that the explanatory power of this model is as high as the model using forecasted or residual income. Considering the higher availability of actual net income, this result supports the usefulness of actual earnings. Next, we demonstrate that the basic value relevance model with actual net income is useful for forecasting future annual returns and obtaining higher portfolio returns. To reduce the practical difficulty of our method, we propose a simple procedure, which requires inputting only three pieces of the accounting information of the target firm (sales, net income, and book value of equity) to estimate its intrinsic value. This valuation method should contribute to the international investment decision-making especially for practitioners without enough experience of valuation.

Проєктно-дослідницька діяльність учителя початкової школи у контексті вимог нуш

The article reveals some substantive and procedural aspects of project and research activity of primary school teachers in the context of the requirements of the New Ukrainian school. Identified semantic concept design and research activities – the basis for disclosure of its content via characterization of the components of the designated phenomenon «procta activity» and «research activities». Stated the presence of various scientific positions regarding the basics of project activities as innovative teaching technologies, diversity of views on the interpretation of the concept of «research activity» in the plane of the process, productive, and combined approaches. Clarified interpretation of the concept of «project development activities» for resent and semantic, and procedural correlation and complementarity of the components of the phenomenon being studied, their similarities and distinctions. Generally, according to the conceptual provisions of the New Ukrainian school modern teacher needs constantly to develop professionally, to focus on the educational needs of students to have creative freedom, the ability to explore problems, to make decisions on a rational basis, to have individual research trajectory of professional activity, which brings a new level of value relevance research paradigm in the formation of research competence of primary school teachers as the prospects for further research. Different approaches to clarifying the essence, semantic field of the category «design and research activities» through the characteristics of the components of the phenomenon «project activities» and «research activities», their basis, commonality and difference, the possibility of integration. It is substantiated that the use of the concept of «project-research activity» in the context of the professional activity of a primary school teacher only emphasizes the research nature of the project method. Undoubtedly, in accordance with the conceptual provisions of the New Ukrainian School, a modern teacher must constantly develop professionally, focus on the educational needs of students, have creative freedom, the ability to explore problems, make decisions on a rational basis, have an individual research trajectory. This brings to a new level of relevance the importance of the research paradigm in the formation of design and research competence of primary school teachers, with which, in fact, we associate the prospects for further research.

Relevance of earnings and book value: Evidence from listed pharmaceutical companies

For accounting information to be useful for decision making it is essential that it is relevant for decision-making and should have a significant relation with stock prices or stock returns. Value relevance research aims to explain the impact of accounting information on stock prices or stock returns. This study examines the value relevance of earnings and book values on listed Indian pharmaceutical companies’ stock prices by using the Ohlson price model. The study gathered a series of panel data from 2006 to 2015 from the Nifty Pharma index. Ordinary least square and panel regression estimation were done using EViews. The findings provide sufficient evidence of those earnings per share (EPS) and book value per share (BVPS) jointly and individually for the Nifty Pharma index sample played an essential role in influencing stock prices. However, there is an insignificant decline in the combined value relevance of EPS and BVPS. The findings reveal that the EPS and BVPS played an important role in influencing stock prices. However, explanatory powers of EPS and BVPS in all years are significantly lower than that of developed countries. Overall findings show mixed results on the considerable influence of firm size on the value relevance of accounting information. This study’s findings have implications for analysts, investors, and other market participants; they should use EPS and BVPS in the equity valuation of pharmaceutical companies for better allocation of resources in capital markets.

A Consistent Research Design for Value Relevance Studies

We argue that Ohlson's linear solution to the residual earnings (RE) equation, a crucial component of widely used value relevance research designs, is not necessarily a linear regression. Moreover, its coefficients are firm-dependent. As such, its empirical specifications, the price-levels and the returns-earnings regressions are structurally ill-suited for consistent inference in cross-sections. We prove the existence of a non-linear regression solution to the RE equation and propose a valuation-based research design that builds on such a solution and warrants a consistent estimation of the empirical specification. Its estimation turns out to be an optimal implementation of the price-to-book (P/B) multiple valuation, an easy-to-apply technique familiar to the accounting community. The proposed regression view on multiple valuation identifies the P/B value with a price that incorporates earnings expectations formed only on the basis of the current levels of the RE drivers. Using a large sample of US non-financial firms over almost 40 years, we document the usefulness of the alternative research design through a comparative testing of two economically-motivated and intuitively-appealing predictions: earnings volatility and the quality of accruals are value-relevant. While the standard research design does not validate them, the approach based on the regression solution to the RE shows a significant association between prices and the two attributes for most of the years in the sample.

Incremental Value Relevance of Disaggregated Book Values and Disaggregated Earnings: Evidence from Nigeria

The link between accounting information and firm value has attracted the attention of accounting and finance researchers since the seminar work of Ball and Brown (1968) and Beaver (1968). The association of accounting information with firm value is value relevance research. Value relevance is the degree to which accounting information captures information impounded in stock prices. Ohlson (1995) provided the conceptual linkage between accounting information and firm value. Since then, value relevance research has increased in volume and diversity. A trend in this line of enquiry is to determine if disaggregated accounting information is incrementally value relevant beyond bottom line accounting information. The objective of this paper was to ascertain if disaggregated accounting information has more value relevance compared to bottom line measures for firms listed on the Nigerian Stock Exchange Market. We specifically investigated the value relevance of disaggregated accounting information for Nigerian listed firms, using a sample of 940 firm-years from 1994 to 2013. The study contributes to the extant value relevance literature by employing a methodology that accounts for documented inefficiencies of the Nigerian capital market. Given the analysis conducted, findings indicate that disaggregated earnings are incrementally value relevant beyond bottom line earnings. Besides, disaggregated book value is found to be more value relevant compared to book value. In the light of these findings, both investors and analysts should shift emphasis from bottom line accounting information, like earnings and book value to disaggregated accounting numbers to improve the quality of investment decisions they make. Besides, regulatory authorities must improve on the corporate governance environment in order to mitigate incidences of window dressing, creative accounting and other corporate malfeasances

IAS/IFRS and financial reporting quality: Lessons from the European experience

This paper discusses the effects of the adoption of IAS/IFRS in Europe on the quality of financial reporting. In doing so, it adopts the perspective of stock market investors and focuses on value-relevance research. The adoption of IAS/IFRS in Europe is an example of accounting standardization among countries with different institutional frameworks and enforcement rules. This allows investigating whether, and to what extent, accounting regulation per se can affect the quality of financial reporting and leads to convergence in financial reporting. This is a key issue for standard setting purposes as IAS/IFRS have been adopted in very diverse countries all over the world, and many others are likely to adopt them in the near future.

The value relevance of financial information in troubled waters. The evidence of Italian context

Stemming from value relevance research, this study investigates the ability of accounting and financial data to provide useful information about the economic value of the firm in trouble waters. Because the firm is at the center of a network of interests of many stakeholders, that put some expectations on it, the investors requires useful financial statements information in order to take rational investment decisions about financial instruments, such as equity and corporate debts. Academic literature define value relevant the accounting information able to change the expectations but also to induce a change in the behavior of the decision makers. To ensure that the accounting information reported in the financial statements are value relevant they need to be related to the company current value. The aim of this research is to study the usefulness of accounting information perceived by investors and to understand the process of allocation of resources in the capital market in trouble waters.

Does Recognition versus Disclosure Affect Value Relevance? Evidence from Pension Accounting

ABSTRACTThis study examines whether institutional ownership and analyst following affect the value relevance of disclosed versus recognized pension liabilities. Using a sample of firms with pension liabilities that were disclosed under SFAS No. 87 and subsequently recognized under SFAS No. 158 from 1999 to 2007, I find that off-balance-sheet pension liabilities are more value relevant for firms with a higher level of institutional ownership or analyst following in the pre-158 period. More importantly, I find that SFAS No. 158 increases the value relevance of previously disclosed off-balance-sheet pension liabilities for firms with a low level of institutional ownership or analyst following, and that the increase in the value relevance becomes less pronounced for firms with a higher level of institutional ownership or analyst following. Overall, the results are consistent with the view that institutional ownership and analyst following affect the value relevance of disclosed information as well as the valuation difference between disclosed and recognized information. This study also highlights the importance of considering institutional ownership and analyst following in the value-relevance research.Data Availability: All data are publicly available from the sources indicated in the text.

Is transaction price more value relevant compared to accounting information? An investigation of a time-series approach

The current literature on the value relevance of accounting information primarily proxies for stock values using transaction prices, a practice that some believe may mislead value relevance research conclusions. Without assuming that prices are equivalent to intrinsic values, this paper assesses the information content found in equity prices in addition to that in book values and reported earnings. We obtain two cointegration relations from the residual income valuation model and estimate trivariate error-correction models with aggregate stock market data from Taiwan. The long-run causality and common factor analyses reveal that prices have lesser fundamental information content than book values, indicating that the quarterly prices may contain sizable noise trading elements. The short-run analysis conversely suggests that prices exert a stronger causal influence compared to book values. Such a short-run misjudgment of the information role of price versus book value appears consistent with the literature indicating that investors are overconfident about their private information but underplay the value relevance of public information.

Value Relevance of Financial Reporting on the Warsaw Stock Exchange

The paper is associated with value relevance research, investigating whether information from financial reports is reflected in the value of listed companies. The study includes annual reports of 440 companies listed on the Warsaw Stock Exchange in Poland in the years from 2000 to 2010. Models describing the relationship between information from financial reports and a measure of stock prices are based, in part, on a factor analysis. Validation of models on the holdout sample confirmed their effectiveness. The results show that the value relevance models may be one of the tools in building investment strategies.

Discussion: the impact of market segmentation on the value-relevance of accounting information: evidence from China

Value relevance research, which investigates the usefulness of accounting information to stock investors, has received considerable international attention. Following this line of research, Wu et a...

Value-Relevance of Financial and Non-Financial Information for the Publicly Traded Internet-Based Companies in the Post-Sarbanes-Oxley Period

This research is a value-relevance research and constitutes a part of the Market-based Accounting Research (MBAR).It examines the relationship between the market value of Internet-based companies from the NASDAQ QNET index and different financial and non-financial value-drivers.The period examined is from Q1 2009 to Q2 2010. Financial components considered are book value, profit, operating cash flow, R&D and SG&A expenses as well as earnings before interest, taxes, depreciation/amortization (EBIT). The non-financial item used is Alexa rank which is a composite Internet metric based on web traffic, page views and other popular non-financial metrics examined in the previous research. The Ordinary Least Square (OLS) regression analysis is used to examine these relationships. The book value of equity and R&D expense are found to be value-relevant in line with the previous research done in 1999-2002. SG&A expense is not found to be value-relevant in this study. The quality of data sets and transformations for the cash flow, profit and EBIT variables precluded coming to any definite conclusions regarding their value-relevance. The internet metric, Alexa rank, is not found to be value-relevant but the small sample size for this particular test as well as the short time period considered could be the reasons. Originally three hypotheses were proposed however it became possible to expand the models to include two additional hypotheses. This ensured a more extensive value-relevance analysis for different components of financial statements.

Accruals and the prediction of future cash flows

PurposeThe purpose of this paper is to examine the comparative abilities of current period cash flows and earnings (and its components) to predict one‐year‐ahead cash flow from operations in Egypt.Design/methodology/approachThe study uses the cash flow prediction models developed by Barth, Cram, and Nelson to examine the predictive abilities of earnings and cash flows for future cash flows. The first set of prediction models uses cross‐sectional regression to compare the predictive abilities of cash flows and aggregate earnings for one‐year‐ahead cash flow from operations. The second set of prediction models tests whether disaggregating earnings into cash flows and the major components of accruals enhances the predictive ability of earnings for one‐year‐ahead cash flow from operations.FindingsThe findings of the study reveal that aggregate earnings have superior predictive ability than cash flows for future cash flows. Also, the results reveal that disaggregating accruals into major components – changes in accounts receivable and payable, and in inventory, depreciation, amortization, and other accruals – significantly enhances predictive ability of earnings.Research limitations/implicationsThe study provides empirical evidence on the superiority of earnings in predicting future cash flows. The findings of the study should be considered in explaining the results of value relevance research Egypt. However, owing to relatively small sample size, given the thinness of the Egyptian capital market, these findings should be interpreted with caution.Originality/valueThe paper contributes to the limited body of research on the superiority of earnings and cash flows in predicting future cash flows by examining the predictive abilities of earnings and cash flows for future cash flows in Egypt as one of many emerging markets.

Commentaries and Rejoinder to “Marketing and Firm Value: Metrics, Methods, Findings, and Future Directions”: Linking Marketing Actions to Value Creation and Firm Value: Insights from Accounting Research

Srinivasan and Hanssens (2009) offer an ambitious research agenda for establishing the links among marketing actions, value creation, and observed market values. They describe the research technologies available for exploring these links and summarize the current understanding of these links based primarily on evidence from the marketing literature. We complement Srinivasan and Hanssens's work by highlighting the insights, opportunities, and challenges that accounting researchers have encountered in addressing highly related questions. This commentary proceeds as follows: We summarize accounting researchers' broad interest in intangible invest ments and its potential applicability to the research agenda that Srinivasan and Hanssens propose. Next, we discuss accounting research that links marketing actions to interme diate measures of value creation. We follow this with a dis cussion of the theoretical foundations for and what can be learned from value-relevance research designs. Then, we discuss short-window studies. Finally, we suggest potential tests of the appropriateness and completeness of the mar ket's reaction to marketing actions and present evidence from the accounting literature that is relevant to the ques tion whether managers can influence investors' understand ing of marketing actions.

A Review of the Value Relevance Literature

Value relevance research empirically investigates the usefulness of accounting information to stock investors. Accounting information is denoted as value relevant if there is a statistical association between the accounting numbers and market values of equity. This review provides a comprehensive study of the value relevance literature. The review fo- cuses mainly on high-quality value relevance research from the last two decades, but it also covers seminal studies from the late 1960s. The primary focus is on research on U.S. financial data, but some international evidence is also presented. The articles are generally selected from top accounting journals. The review offers an introduction to the methodology employed within this research tradition and presents the main results from studies regarding the value relevance of the two summary measures used in financial reports, namely, earnings and book equity. Furthermore, the review describes studies on the development in value relevance over time and shows how value relevance from different accounting methods can be compared. Overall, the review provides in-depth information on the value relevance literature to readers who wish to familiarise themselves with this line of empirical accounting research.

The Roles of Earnings and Book Value in Equity Valuation: A Real Options Based Analysis

Employing a real options based valuation model, this paper examines the valuation roles of earnings and book value and cross-sectional differences in valuation properties. Consistent with theoretical predictions, we find that (i) as profitability increases, the value impact of earnings increases whereas that of book value decreases and eventually becomes negative; (ii) the explanatory power of earnings increases, and that of book value decreases, monotonically with profitability, with the two accounting measures behaving as valuation substitutes within a certain intermediate-profitability range; (iii) the P/B ratio increases with both profitability and growth opportunity, whereas P/E behaves in a non-monotonic fashion. Implications are discussed for value-relevance research.