Changes in the value-relevance of earnings and book values over the past forty years

Collins, Daniel W.; Maydew, Edward L.; Weiss, Ivy

doi:10.1016/s0165-4101(97)00015-3

Cited by 1,426 publications

(1,398 citation statements)

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“…However, there are contradictory inferences on the direction of change in relevance and its source. Collins, Maydew, and Weiss (1997), Francis & Schipper (1999) demonstrate an increasing trend in value relevance. Lev and Zarowin (1999), Core, Guay and Buskirk (2003) find evidence of declining value relevance of accounting information.…”

Section: Introductionmentioning

confidence: 93%

“…Ibadin (2015) and Collins, Maydew and Weiss (1997) assert that the common belief that traditional financial statements have lost their relevance, is adduced to the transition from industrialized economy to high-tech, service-oriented economy. However, there are contradictory inferences on the direction of change in relevance and its source.…”

Section: Introductionmentioning

confidence: 99%

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The Value Relevance of Accounting Information: Evidence from Nigeria

Omokhudu¹,

Ibadin²

2015

AFR

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Value relevance of accounting information addresses the degree to which accounting information summarizes the information that is impounded in share prices. Therefore, the purpose of this paper is to contribute to the empirical literature on value relevance by examining the extent to which accounting information is associated with firm value, from an emerging market context. The paper uses the basic Ohlson (1995) model and the modification of the model that includes cash flow from operation, and dividends, to ascertain the value relevance of accounting information in Nigeria. The paper accommodates the documented relative inefficiency of the market by using stock price at three months and six months after year end as dependent variable. The study employs a pooled and panel data in the regression of share price and returns on accounting numbers. The ordinary least square (OLS) estimation and dynamic model estimation, with the Random and Fixed effects variants were used in the regression. We find that earnings, cash flow and dividends were statistically significantly associated with firm value but book value was related but not statistically significant. Based on these findings, it is suggested that the focus of investors should be on earnings, dividends and cash flows while less emphasis be placed on book values. Besides, the accounting information for investment purposes should be communicated to the investing public; and such information should be of high quality to avoid sub-optimal investment decisions by investors, with negative consequences for the overall economy

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Section: Introductionmentioning

confidence: 93%

Section: Introductionmentioning

confidence: 99%

The Value Relevance of Accounting Information: Evidence from Nigeria

Omokhudu¹,

Ibadin²

2015

AFR

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“…Over the years, extant literatureshave examined the value relevance of accounting information. For example, Collins et al (1997) avowed that due to the transition from industrialized economy to high-tech oriented economy, financial statements have lost their relevance. However, there are contradicting opinions or inferences on the direction of change in value relevance.…”

Section: Introduction mentioning

confidence: 99%

Value relevance of financial statements and share price: a study of listed banks in Nigeria

Uwuigbe

Jafaru

Igbinoba

et al. 2016

Banks and Bank Systems

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This paper examined the effects of value relevance of financial statements on firms share price in Nigeria. In achieving the objectives of this research, the fact book from the Nigerian Stock Exchange Market and the audited financial statement of listed banks spanning the period 2010-2014 were used. Also, a total of 15 listed banks in the Nigerian stock exchange market were selected and analyzed for the study using the purposive sampling method. However, in analyzing the research hypotheses, the study adopted the use of both descriptive statistics and the use of Fixed Effects Panel data method of data analysis technique. Findings from the study showed that a significant positive relationship existed between earnings per share (EPS) and Last day share price (LDSP). The study recommends the need for banks in the country to improve on the quality of earnings reported, since it has a stronger ability to explaining share prices of firm.

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“…However, were w to be 0.5 then the equity coefficient would be +0.14 and the net income coefficient +7.5. Results from previous studies, all based on non-financial firms, including Collins, Maydew and Weiss (1997) for the US, Harris et al (1994) for Germany, Joos and Lang (1994) for Germany, France and the UK and Rees (1997) for the UK, imply the w is somewhat less than one. In all cases the coefficient on net income is less than +15 implied above and the coefficient on equity is positive, as is the intercept term.…”

Section: Methodsmentioning

confidence: 82%

The Valuation of European Financial Firms

Danbolt

Rees

2002

Review of Accounting and Finance

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We extend the recent literature concerning accounting based valuation models to investigate financial firms from six European countries with substantial financial sectors: France, Germany, Italy, Netherlands, Switzerland and the UK. Not only are these crucial industries worthy of study in their own right, but unusual accounting practices, and inter‐country differences in those accounting practices, provide valuable insights into the accounting‐value relationship. Our sample consists of 7,714 financial firm/years observations from 1,140 companies drawn from 1989–2000. Sub‐samples include 1,309 firm/years for banks, 650 for insurance companies, 1,705 for real estate firms, and 3,239 for investment companies. In most countries we find that the valuation models work as well or better in explaining cross‐sectional variations in the market‐to‐book ratio for financial firms as they do for industrial and commercial firms in the same countries, although Switzerland is an exception to this generalization. As expected, the results are sensitive to industrial differences, accounting regulation and accounting practices. In particular, marking assets to market value reduces the relevance of earnings figures and increases that of equity.

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Changes in the value-relevance of earnings and book values over the past forty years

Cited by 1,426 publications

References 8 publications

The Value Relevance of Accounting Information: Evidence from Nigeria

The Value Relevance of Accounting Information: Evidence from Nigeria

Value relevance of financial statements and share price: a study of listed banks in Nigeria

The Valuation of European Financial Firms

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