We examine the value relevance of a comprehensive set of summary performance measures including sales, earnings, comprehensive income, and operating cash flows. We find that, while value relevance peaks for measures “above the line,” no single measure dominates around the world. Instead, a measure is more relevant when it captures, directly and quickly, information about firms’ cash flows. Specifically, for each performance measure by country, we estimate eight attributes commonly used to assess earnings quality. We find these attributes highly correlated—most of their variance is explained by only two principal factors. A factor capturing articulation with cash flows is positively associated with a measure’s value relevance; a factor reflecting the measure’s persistence, predictability, smoothness, and conservatism is negatively associated. Our results suggest that, when it comes to equity valuation, accounting researchers and standard-setters should focus not on what performance measure is “best” at a given point in time, but on the underlying attributes that investors find most relevant.

This paper discusses certain implications of capital-markets-based academic accounting research for the assessment of International Accounting Standards (IAS) by the U.S. Securities Exchange Commission (SEC). The SEC's assessment criteria are comprehensiveness, high quality (comparability, transparency and full disclosure) and rigorous interpretation and application. Existing academic research has few implications for comprehensiveness, transparency and full disclosure, in part because no agreed-upon metrics for measuring these constructs have been developed. Indirect implications for interpretation and application might be drawn from cross-jurisdictional comparisons of income and cash flow volatility and value relevance, provided certain strong assumptions are met. Using Form 20-F reconciliation data, research has documented extensive evidence of noncomparabilities between U.S. GAAP financial statements and statements prepared for the same firms under both various non-U.S. GAAPs and IAS, and some evidence that the differences are value-relevant.

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This paper examines the conditions under which the market responds to disclosures of significant increases in short selling, and whether proxies for earnings expectations and alternative information sources help explain this response. Our sample is based on firms that experience abnormal short interest increases (“short spikes”) during 1989–1998. We find that the mean abnormal return around short spike announcements is significantly more negative for firms with low analyst following, consistent with short sellers providing perceived value when there are limited alternative sources of guidance available. For firms with high analyst following we find the market response is dependent on earnings levels, consistent with investors viewing a short interest increase as providing information about the sustainability of earnings. Additional analyses reveal that these inferences are not affected by measures of firms' earnings quality or by the relative size of the short spike. We infer from our analyses that the information content of short interest disclosures is conditional on both the firms' existing information environment and expectations of future performance as conveyed by prior earnings. This inference is consistent with short sellers' role as information intermediaries covering the lower tail of earnings expectations.