Abstract

http://ssrn.com/abstract=228950
 
 

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The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting


Robert W. Holthausen


University of Pennsylvania - Accounting Department

Ross L. Watts


Massachusetts Institute of Technology (MIT) - Sloan School of Management

September 2000

Simon School of Business Working Paper No. FR 00-05; JAE Rochester Conference April 2000

Abstract:     
We evaluate the literature that, for standard-setting purposes, assesses the usefulness of accounting numbers on their stock market value association. For several reasons we conclude the literature provides little insight for standard setting. First, the association criterion has no theory of accounting or standard setting supporting it. Standard setters' descriptions of their objectives and accounting practice are both inconsistent with the criterion. Important forces shaping accounting standards and practice are ignored. Second, many tests in the literature rely on valuation models that omit important factors and many studies do not provide links between valuation model inputs and accounting numbers. Finally, there are a variety of significant econometric issues in the studies.

Number of Pages in PDF File: 80

JEL Classification: M41, M44, M49, G12

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Date posted: October 20, 2000  

Suggested Citation

Holthausen, Robert W. and Watts, Ross L., The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting (September 2000). Simon School of Business Working Paper No. FR 00-05; JAE Rochester Conference April 2000. Available at SSRN: http://ssrn.com/abstract=228950 or http://dx.doi.org/10.2139/ssrn.228950

Contact Information

Robert W. Holthausen (Contact Author)
University of Pennsylvania - Accounting Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7781 (Phone)
215-898-3664 (Fax)

Ross L. Watts
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
E52-325
Cambridge, MA 02142
United States
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