The Value Relevance of Multiple Occurrences of Nonrecurring Items

The Value Relevance of Multiple Occurrences of Nonrecurring Items Discontinued operations, special items, or extraordinary items typically are nonrecurring items in firms' income statements. As such, prior research has theorized that these items are of minimal relevance to market valuation of the firm, since they are transitory in nature. Moreover, anecdotal evidence in the financial press is supportive of this notion. We examine firms that report either single or multiple occurrences of such items over a rolling six-year period between 1977 and 1996 and find in both cases that such items are value-relevant. When multiple occurrences are not partitioned by type (discontinued operations, special items, or extraordinary items), the more recent such event in the series has a negative effect upon market value of equity, whether it has had a positive or negative effect upon net income. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The Value Relevance of Multiple Occurrences of Nonrecurring Items

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1012054609524
Publisher site
See Article on Publisher Site

Abstract

Discontinued operations, special items, or extraordinary items typically are nonrecurring items in firms' income statements. As such, prior research has theorized that these items are of minimal relevance to market valuation of the firm, since they are transitory in nature. Moreover, anecdotal evidence in the financial press is supportive of this notion. We examine firms that report either single or multiple occurrences of such items over a rolling six-year period between 1977 and 1996 and find in both cases that such items are value-relevant. When multiple occurrences are not partitioned by type (discontinued operations, special items, or extraordinary items), the more recent such event in the series has a negative effect upon market value of equity, whether it has had a positive or negative effect upon net income.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 8, 2004

References

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