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Have accounting measures lost their usefulness after the 2008 global financial crisis?

Have accounting measures lost their usefulness after the 2008 global financial crisis? PurposeThis purpose of this paper is to investigate the value relevance and incremental importance of earnings and book value in the Kuwaiti market to equity holders over time and in the context of the decade after the 2008 global financial crisis.Design/methodology/approachFollowing reports in the literature, the value relevance of earnings and book values was examined using the price valuation model provided by Ohlson (1995). Observations (2,817) were collected from all firms listed on the Kuwait Stock Exchange from 1994 to 2016.FindingsThe results suggest that the value relevance of earnings and book values declined over this period, and that the loss of value relevance for earnings data was greater than that for book value. The analysis provides evidence that the decline in value relevance of earnings and book value was driven by book values in the post-GFC period and suggests an exchange of value relevance between earning and book value post GFC.Practical implicationsThe results are useful for regulators, analysts, investors and academics as an assessment of effectiveness of current financial reporting. There is a need for improvement because quality information helps equity holders determine value precisely. Timely financial reporting may mitigate the drop in value relevance of financial statements.Originality/valueThis is the first study to examine value relevance accounting measures of Kuwaiti companies, in the post-GFC context. It contributes to capital market research through an empirical examination of a frontier capital market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Reporting and Accounting Emerald Publishing

Have accounting measures lost their usefulness after the 2008 global financial crisis?

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1985-2517
DOI
10.1108/JFRA-05-2018-0035
Publisher site
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Abstract

PurposeThis purpose of this paper is to investigate the value relevance and incremental importance of earnings and book value in the Kuwaiti market to equity holders over time and in the context of the decade after the 2008 global financial crisis.Design/methodology/approachFollowing reports in the literature, the value relevance of earnings and book values was examined using the price valuation model provided by Ohlson (1995). Observations (2,817) were collected from all firms listed on the Kuwait Stock Exchange from 1994 to 2016.FindingsThe results suggest that the value relevance of earnings and book values declined over this period, and that the loss of value relevance for earnings data was greater than that for book value. The analysis provides evidence that the decline in value relevance of earnings and book value was driven by book values in the post-GFC period and suggests an exchange of value relevance between earning and book value post GFC.Practical implicationsThe results are useful for regulators, analysts, investors and academics as an assessment of effectiveness of current financial reporting. There is a need for improvement because quality information helps equity holders determine value precisely. Timely financial reporting may mitigate the drop in value relevance of financial statements.Originality/valueThis is the first study to examine value relevance accounting measures of Kuwaiti companies, in the post-GFC context. It contributes to capital market research through an empirical examination of a frontier capital market.

Journal

Journal of Financial Reporting and Accounting – Emerald Publishing

Published: Dec 2, 2019

References

  • Have financial statements lost their relevance? Empirical evidence from the frontier market of Kuwait
  • The role of audit quality in firm valuation: evidence from an emerging capital market with a joint audit requirement
  • The value relevance of intellectual capital disclosure: empirical evidence from Kuwait
  • Value relevance of earnings, book value and dividends in an emerging capital market: Kuwait evidence