Financial Crisis and Value Relevance of Financial Statements

Belesis, Nicholas; Sorros, John; Karagiorgos, Alkiviadis

doi:10.2139/ssrn.3316084

Cited by 5 publications

(3 citation statements)

References 10 publications

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“…Nonetheless, Christensen's results show that the overall market response to earnings announcements increases in these contexts, so the positive effects of uncertainty about firms' fundamentals on earnings announcements' informativeness more than compensate for the negative effects that are due to increased noise in the earnings signal. This finding is confirmed by evidence from the 2008 Global Financial Crisis (GFC): Bepari et al (2013) and Belesis et al (2019) document that the earnings response coefficients (ERCs)—that is, the association between abnormal returns and UE—increased during the GFC compared with normal times. More recently, Bonsall et al (2020) confirm the increased informativeness of earnings announcements under uncertain market conditions, show that the media coverage of these announcements increases during periods of higher market uncertainty, and demonstrate that this increased coverage leads to improved trading and price efficiency.…”

Section: Hypotheses Developmentmentioning

confidence: 80%

“…Given the studies that show increased informativeness of earnings announcements during periods of uncertainty (Anthony & Petroni, 1997; Barron & Stuerke, 1998; Belesis et al, 2019; Bepari et al, 2013; Bonsall et al, 2020; Choi, 2019; Christensen, 2002; Collins & DeAngelo, 1990; Lang, 1991), we should expect investors to have anchored their valuations more closely to earnings during the Covid‐19 crisis than they did in the pre‐Covid‐19 period, but there are reasons to expect that such might not be the case. For instance, governments and public authorities immediately put in place support programs to help corporations face the pervasive economic effects of lockdowns imposed by local authorities.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

See 1 more Smart Citation

The informativeness of earnings announcements during times of global uncertainty: Evidence from the Covid‐19 pandemic

Fabrizi

Ipino

Longhin

et al. 2023

Corporate Governance

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Research Question/IssueThis study shows how investors assessed the informativeness of earnings announcements during the Covid‐19 pandemic. Prior studies suggest that earnings announcements are more likely to provide value to investors during periods of heightened uncertainty. However, the massive regulatory intervention that took place during the pandemic is likely to have led investors to seek alternative sources of information and to have reduced their reliance on earnings to price stocks. Moreover, the uncertainty brought by Covid‐19 directly challenged firms' value drivers and business models, potentially inhibiting the ability to map earnings onto stock prices.Research Findings/InsightsThe empirical findings show that earnings announcements lost part of their information content during the Covid‐19 crisis. Cross‐sectional tests document that geographic dispersion of operations and the degree of institutional ownership significantly affected the relationship under study. We also find that the loss of earnings announcements' informativeness was driven by exposure to the pandemic.Theoretical/Academic ImplicationsThe recent accounting literature investigates the role of accounting information in supporting public policy during systemic crises. Our results highlight the firm‐specific attributes that affect investors' perceptions of the informativeness of earnings announcements by showing how geographic dispersion and ownership structure affect it in periods of uncertainty.Practitioner/Policy ImplicationsIn a context in which earnings announcements' informativeness decreases, regulators and standard‐setters should consider taking corrective action to restore its informativeness, such as by strengthening disclosure requirements. The documented decrease in the informativeness of earnings announcements could be partially offset by heightening disclosure requirements to complement financial statements.

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Section: Hypotheses Developmentmentioning

confidence: 80%

Section: Hypotheses Developmentmentioning

confidence: 99%

The informativeness of earnings announcements during times of global uncertainty: Evidence from the Covid‐19 pandemic

Fabrizi

Ipino

Longhin

et al. 2023

Corporate Governance

View full text Add to dashboard Cite

show abstract

“…Similarly, Black and Maggina (2016) found that during the Greek crisis period value relevance of equity and earnings increased compared to the pre-crisis IFRS period. Contrarily, Belesis et al (2016) concluded that the financial crisis in the USA negatively affected earnings and book values information content. Moreover, Iatridis and Dimitras (2013) investigated value relevance changes during the financial crisis period focusing on the European countries which were mostly affected by the debt crisis and companies audited by Big-4 audit firms.…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

Debt crisis, age and value relevance of goodwill: evidence from Greece

Pechlivanidis

Ginoglou

Barmpoutis

2022

IJAIM

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Purpose The purpose of this study is to investigate the value relevance of goodwill and its additional aspects during a long-term period in Greece. Furthermore, by implementing two of the most popular value relevance models, the Ohlson’s price and Easton and Harris’ return model, this study examines the impact of goodwill on Greek stock prices from 2007 to 2018, a period of 12 years in which International Financial Reporting Standards (IFRS) are applied. Furthermore, this study analyzes how goodwill’s value relevance changes as it ages and during the Greek debt crisis. Design/methodology/approach In order to test the value relevance of goodwill we implemented two of the most popular value relevance models, Ohlson’s price and Easton and Harris’ return model. Our sample consists of non-financial listed Greek companies that reported positive goodwill accounting balances on their financial statements during the financial period from 2007 to 2018. Finally, we applied fixed-effects regression model to all equations. Findings The results provide evidence that the year-end goodwill accounting balance is value relevant, and that the debt crisis has improved goodwill’s information content. Finally, the empirical findings suggest that only current year acquired goodwill is value relevant compared to older goodwill, and therefore, goodwill’s impact on stock prices is decreasing as it ages. Research limitations/implications A noteworthy limitation of this study is that it focuses on a specific code-law country Greece, which is a relatively small economy compared to the whole Eurozone. This research contributes to the research literature as it confirms other research findings in the European context and specifically that goodwill based on IFRS is value relevant to financial statement users. Additionally, it investigates for the first time how goodwill was affected by the Greek debt crisis. Finally, it contributes to other researcher’s debate concerning the duration of goodwill’s value relevance in a code law environment such as Greece. Practical implications Financial analysts and institutions are provided with more assurance about goodwill’s financial reporting quality to be embedded in the financial evaluation process of corporates. As this research confirms that goodwill should be regarded as an asset, companies should obtain better financial ratings from financial institutions and investors and thus will have better access to equity and debt funding. Originality/value We investigate the value relevance of goodwill in Greece during a long-term period of 12 years. Additionally, our study examines the impact of the Greek debt crisis on the information content of goodwill accounting balances and the period during which accumulated goodwill balances and within-year acquired goodwill maintain its value relevance. Our research could assist accounting standard setters such as the International Accounting Standard Board to evaluate the quality of specific standards such as IFRS 3 “Business Combination” and IAS 38 “Impairment of Assets.”

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