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

Changes in the value-relevance of earnings and book values over the past forty years This paper investigates systematic changes in the value-relevance of earnings and book values over time. We report three primary findings. First, contrary to claims in the professional literature, the combined value-relevance of earnings and book values has not declined over the past forty years and, in fact, appears to have increased slightly. Second, while the incremental value-relevance of ‘bottom line’ earnings has declined, it has been replaced by increasing value-relevance of book values. Finally, much of the shift in value-relevance fiom earnings to book values can be explained by the increasing frequency and magnitude of one-time items, the increasing frequency of negative earnings, and changes in average firm size and intangible intensity across time. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

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

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Publisher
Elsevier
Copyright
Copyright © 1997 Elsevier Science B. V.
ISSN
0165-4101
D.O.I.
10.1016/S0165-4101(97)00015-3
Publisher site
See Article on Publisher Site

Abstract

This paper investigates systematic changes in the value-relevance of earnings and book values over time. We report three primary findings. First, contrary to claims in the professional literature, the combined value-relevance of earnings and book values has not declined over the past forty years and, in fact, appears to have increased slightly. Second, while the incremental value-relevance of ‘bottom line’ earnings has declined, it has been replaced by increasing value-relevance of book values. Finally, much of the shift in value-relevance fiom earnings to book values can be explained by the increasing frequency and magnitude of one-time items, the increasing frequency of negative earnings, and changes in average firm size and intangible intensity across time.

Journal

Journal of Accounting and EconomicsElsevier

Published: Dec 1, 1997

References

  • Value-relevance of nonfinancial information: the wireless communications industry
    Amir, E.; Lev, B.
  • The conservatism principle and the asymmetric timeliness of earnings
    Basu, S.
  • Investor valuation of the abandonment option
    Berger, P.; Ofek, E.; Swary, I.
  • The information content of losses
    Hayn, C.

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