Value Relevance Studies Research Articles

The Information Perspective and Usefulness of Accounting Information

Relevance of earnings for explaining equity prices is investigated by many value relevance studies. This study investigates whether fiscal year end earnings as a proxy for next period’s earnings have additional information, beyond the information incorporated in contemporaneous equity price, for explaining next fiscal period’s end equity price. Results show that earnings have statistically significant additional information for explaining next fiscal year end equity price, even though the explanatory power of earnings is very low as not considerably supported for model utility. As Ohlson (1995) explores informativeness of fiscal year end earnings as a proxy for next period’s earnings, two alternative models are suggested, where next fiscal year end equity price and price change are considered as the dependent variable and fiscal year end (current) equity price is accommodated as an additional explanatory variable. However, using stationary price change as the dependent variable would be much useful in value relevance studies for econometric reasons. In this context, fiscal year end equity price provides a benchmark to assess additional informativeness of earnings and facilitate the estimated coefficients of earnings to capture and represent the information incorporated in the earnings data.

The Impact of Brand Value Announcements on Firm Value

U.S. firms are not required to report the values of internally-developed brands on their balance sheets. This paper tests whether brand value estimates provided by an external organism, i.e., the consultancy firm Interbrand, are value relevant. Unlike prior value relevance studies we use an event study analysis, which enables us to assess (i) whether brand value announcements have a causal impact on stock prices, (ii) what is the magnitude of the impact, and (iii) whether there are cross-sectional differences in the brand value impact. We document that stockholder reactions to brand value announcements are both statistically and economically significant. Stock prices are linearly increasing in the magnitude of the brand value change relative to the previous year's estimated value.

Empirical Test Of The Ohlson Model: Evidence From The Mauritian Equity Market

This study investigates the existence of value relevance of accounting information in Mauritius Stock Market using the Ohlson model (1995), which encourages the adoption of the historical price model in value relevance studies, defining value as a function of earnings and book values. Using data for the period 1998-2006, the residual earnings and clean surplus book values of thirty eight (38) companies have been computed and analysed alongside their respective quoted market prices. Results from the analysis showed that earnings and book values have value relevance in the price of shares listed on the stock exchange. The study also reveals that there is a variation with regard to value relevance of financial and non-financial firms. Keyword: Ohlson Model, Equity, Accounting Information.

Empirical Study of Value Relevance under Residual Income Model and Abnormal Earnings Growth Model

Empirical Study of Value Relevance under Residual Income Model and Abnormal Earnings Growth Model

Value Relevance Study—Relevant for What?—and Beyond: Changing Equity Premium and Empirical Research

WHAT ARE THE IMPLICATIONS OF THIS QUESTION ON ACCOUNTING? alue relevance research, broadly defined, seemed to be a default thesis topic for Ph.D. students in the 90s such as me, but I was lucky, or unlucky, to have Shyam Sunder as my adviser. Accordingly, I approached value relevance studies from a skeptical point of view. ost empirical research does not sufficiently contemplate the model-dependent nature of value elevance studies, and I want to emphasize that event studies are not free from this dependence ecause we cannot distinguish a reaction to news from a realization of risk premium. CAPM is no longer the asset pricing model except in introductory MBA courses, and its mpirical validity has been seriously questioned Campbell 2008; Cochrane 2007a . In particular, he constant equity risk premium assumption is empirically untenable. As Cochrane 2007b ointed out, the alpha and beta framework has been dead, and “there is no alpha and beta, there is ust beta you know about, and beta you don’t understand yet, and no clear separation between the wo.” That observation means that we can find a mean-variance efficient portfolio incorporating as any factors as we want, unless there is an arbitrage opportunity. So there are few, if any, estrictions for model construction. Because any value relevance study is model-dependent, and there is virtually no restriction on sset pricing models, we cannot get any objective policy implications from observed returns being bnormal or unexpected because we can always claim the return is not abnormal or unexpected ut is the result of the underlying asset pricing model’s being subnormal.

What Financial and Non-Financial Information on Intangibles is Value Relevant? A Review of the Evidence

This paper evaluates what we have learned about the relevance and reliability of financial and non-financial information on intangibles from the value relevance literature. Because value relevance studies do not easily allow judgements about the reliability of information on intangibles, and this is an issue of central interest, this paper takes a rather wide look across a range of literatures to try to piece together some indirect evidence on both relevance and reliability. The evidence from a package of value relevance and triangulation studies suggests RD and the possibility that giving management discretion, with regulatory guidance, to report intangibles might facilitate more value relevant information on intangibles.

The negative impact of R&D capitalization: A value relevance approach

Accounting for R&D costs is an open issue. SFAS N°2 mandates that all R&D costs must be immediately expensed. IAS 38 requires capitalization of R&D costs if they meet certain criteria. Recent research papers show the value relevance of capitalized R&D. We test the value relevance of R&D reporting in a sample of 197 French firms between 1993 and 2002. The French context provides an interesting field for R&D value relevance studies because both accounting treatments of R&D costs (expensing and capitalization) are allowed. Unlike previous studies, we find that capitalized R&D is negatively associated with stock prices and returns. This negative coefficient on capitalized R&D implies that investors are concerned with and react negatively to capitalization of R&D. We also find that the firms choosing to capitalize (successful) R&D are smaller, more highly leveraged, less profitable and have less growth opportunities. Taking into account these characteristics, our robustness checks confirm that capitalized R&D is not associated with higher prices and is related to lower returns.

Do Financial Analysts Play a Role in Valuation? Evidence from Asian Stock Markets

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 (e.g., Collins et al. 1997; Francis and Schipper 1999). However, Ohlson (2001) argues that 'other information' is ignored in these studies and the valuation model could be improved by incorporating analyst earnings forecasts. This study uses the argumentation provided by Ohlson (2001) and examines whether the empirical version of the residual income model that uses earnings forecasts is a better model than the historical price model in seven Asian countries: Hong Kong, Malaysia, Singapore, Thailand, Indonesia, the Philippines and Korea, as well as in country groups and subgroups by their legal origins: the common-law group and the civil-law group (with subgroups of French origin and German origin). The results show that the adjusted R2 for the residual income model is higher than for the historical price model in some countries and country groups. The improvements are more significant in countries or country groups where public disclosure is more important to solve the information asymmetry problem between managers and investors.

The Value Relevance and Reliability of Brand Assets Recognized by U.K. Firms

We examine the value relevance and reliability of brand assets recognized by 33 U.K. firms, and the stock price reaction to the announcement of brand capitalization. We find that brand assets are value relevant, i.e., associated with market values. However, the market capitalization rates of brands of firms with low contracting incentives are higher than those of firms with high contracting incentives to capitalize and overstate brand values. Thus, there could be substantial differences in the extent of bias or error in brand valuations of firms with different levels of contracting incentives, i.e., brand asset measures might not be reliable. The stock price reaction during the 21 days surrounding the first announcement of brand recognition is significantly positively associated with the recognized brand amount. However, the brand coefficient is only a small fraction of what would be expected if markets did not impute any value to brands before firms recognized them. Few previous value-relevance studies have examined intangible assets recognized in financial statements, and none have examined the effects of contracting incentives on the reliability of the reported values of intangible assets.

Recommendations on Disclosure of Nonfinancial Performance Measures

Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Share Icon Share Twitter LinkedIn Tools Icon Tools Get Permissions Cite Icon Cite Search Site Citation Laureen A. Maines, Eli Bartov, Patricia M. Fairfield, D. Eric Hirst, Teresa E. Iannaconi, Russell Mallett, Catherine M. Schrand, Douglas J. Skinner, Linda Vincent; Recommendations on Disclosure of Nonfinancial Performance Measures. Accounting Horizons 1 December 2002; 16 (4): 353–362. doi: https://doi.org/10.2308/acch.2002.16.4.353 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu nav search search input Search input auto suggest Search

The relevance of the value relevance literature for financial accounting standard setting: another view

This paper explains that value relevance research assesses how well accounting amounts reflect information used by equity investors, and provides insights into questions of interest to standard setters. A primary focus of financial statements is equity investment. Other uses of financial statement information, such as contracting, do not diminish the importance of value relevance research. Value relevance questions can be addressed using extant valuation models. Value relevance studies address econometric issues that otherwise could limit inferences, and can accommodate and be used to study the implications of accounting conservatism.

The Impact of Valuation Models on Value-Relevance Studies in Accounting: A Review of Theory and Evidence

This paper reviews some of the theory and evidence associated with value-relevance studies in accounting. Two valuation models are commonly used in value-relevance studies, namely the price model and the return model. Although their theoretical foundations are the same, the results obtained using these two models are sometimes inconsistent. The problem related with the price model is often referred to as 'scale effects' and those with the return model are termed 'accounting recognition lag' and 'transitory earnings'. Some methods to mitigate these problems are suggested by researchers. However, none of them leads to a perfect solution to these problems and the inconsistent results remain unexplained. Perhaps, in the absence of a definite solution, using both the price and the return models is the most appropriate response despite the fact that this may lead to ambiguous conclusions.

The Value-Relevance of Book Value, Current Earnings, and Management Forecasts of Earnings

This paper investigates the value-relevance of book value, earnings, and management forecasts of earnings in Japan over the past twenty years. Although most value-relevance studies in the U.S. use return and price based models whose theoretical foundations are derived from the Ohlson (1995) linear information model, other information, v, in the Ohlson's model is ignored in both types of model. This research exploits the unique setting in Japan where managers simultaneously announce the most recently completed period's earnings as well as forecasts of next period's earnings. In this case, management forecasts are available for use as a proxy for v. The results in this paper indicate that management forecasts of earnings (changes) have the highest correlation with stock price (returns) and the incremental explanatory power of current earnings (changes) almost disappears when management forecasts of earnings (changes) are included in the models. The market also appears to place more importance on management forecast information when firms are growing rapidly and when firms' current earnings exceed the forecasts made at the beginning of the period.

The Relevance of the Value Relevance Literature For Financial Accounting Standard Setting: Another View

This paper offers a view of the relevance of value relevance research for financial accounting standard setting that contrasts with the view offered in Holthausen and Watts (2001) (hereafter HW). A key conclusion of HW is that value relevance research offers little or no insight for standard setting. As active participants in value relevance research, our purpose is to clarify the relevance of the value relevance literature to financial accounting standard setting. Because we are discussants of HW, we only address issues raised in that paper. In particular, HW is limited in scope to a discussion of the relevance of the value relevance literature for financial accounting standard setting; it does not comprehensively review the value relevance literature. Accordingly, our discussion is similarly limited. A key conclusion of our paper is that the value relevance literature provides fruitful insights for standard setting. This paper also clarifies several misconceptions articulated in HW regarding value relevance research. In particular, in contrast with HW, we conclude: (1) value relevance research provides insights into questions of interest to standard setters and other non-academic constituents. (2) A primary focus of the FASB and other standard setters is equity investment. The possible contracting and other uses of financial statements in no way diminish the importance of value relevance research. (3) Empirical implementations of extant valuation models can be used to address questions of value relevance despite their simplifying assumptions. (4) Value relevance research can accommodate conservatism, and can be used to study its implications for the relation between accounting amounts and equity values. (5) Value relevance studies are designed to assess whether particular accounting amounts reflect information that is used by investors in valuing firms' equity, not to estimate firm value. (6) Value relevance research employs well-established techniques for mitigating the effects of various econometric issues that arise in value relevance studies.