Economic Consequences of the Declining Relevance of Financial Reports

Sinha, Nishi; Watts, John

doi:10.2139/ssrn.217488

Cited by 6 publications

(5 citation statements)

References 26 publications

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“…Shina and Watts (2001) predict that an overall decline through increased information asymmetry in financial information and higher search costs leads to a loss in overall economic efficiency.2 The exception isLandsman and Maydew (2002) who, using event methodology, found no evidence of a decline in the value relevance of earnings announcements around announcement date.3 Other studies test the impact of other information on value relevance. For example, whether analysts reports are gaining relevance at the expense of earnings(Francis et al , 2002), or whether alternative accounting-based financial and non-financial performance metrics are increasing in value relevance; such as EBITDA or industry specific performance measures(Francis et al , 2003).…”

mentioning

confidence: 99%

On the intertemporal value relevance of conventional financial accounting in Australia

Brimble

Hodgson

2007

Accounting & Finance

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This paper examines whether the relevance of conventional (earnings focused) accounting information for valuation has declined in Australia over a recent period of 28 years. Motivation is provided by the anecdotal concerns of financial analysts, accounting regulators, and a cluster of US centric academic research papers that conclude that the relevance of financial accounting (and earnings in particular) has declined over time. After controlling for nonlinearities and stock price inefficiencies, we find that the value relevance of "core" accounting earnings has not declined. A possible exception is found for small stocks. We also observe that net book values are relatively less important in Australia when compared to the USA. Our results are informative for investors who require feedback on valuation issues and the International Accounting Standards Board regulators in any further moves towards a balance sheet focus. Copyright (c) The Authors Journal compilation (c) 2007 AFAANZ.

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confidence: 99%

On the intertemporal value relevance of conventional financial accounting in Australia

Brimble

Hodgson

2007

Accounting & Finance

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“…Therefore, historical cost generally does not completely reveal a firm's inventory holding despite the fact that the relation between the per unit manufacturing cost and the inventory choice is so simple. Hence, although it is widely recognized that financial statements provide information to competitors about firms' production technologies (Hwang and Kirby 2000;Sinha and Watts 2001), we observe that, even in this simple setting, firms might benefit from gathering information from other sources, such as visits to its competitor's stores and warehouses, a possibility we suppress.…”

Section: Firm I Reports the Value Of Its Inventory Atmentioning

confidence: 80%

Strategic Consequences of Historical Cost and Fair Value Measurements*

Reis

Stocken

2007

Contemporary Accting Res

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“…The increase of industry‐specific measures, such as web traffic performance factors for Internet firms (Demers and Lev 2001), other competing information sources (such as financial analysts, industry experts, and trade publications), and other firm communications (such as conference calls, press releases, and corporate newsletters), has reduced the marginal contribution of financial reports in determining firm value (Sinha and Watts 2001). Dontoh et al (2004) also contribute to this theory by showing how the increasing quantity of non‐information‐based trading activity impacts value relevance.…”

Section: Explanations For Changes In Value Relevance Over Timementioning

confidence: 99%

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

Dunham

Grandstaff

2021

Accounting Perspectives

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The 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.

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Economic Consequences of the Declining Relevance of Financial Reports

Cited by 6 publications

References 26 publications

On the intertemporal value relevance of conventional financial accounting in Australia

On the intertemporal value relevance of conventional financial accounting in Australia

Strategic Consequences of Historical Cost and Fair Value Measurements*

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

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