Longitudinal Earnings Value Relevance and Intangible Assets: Evidence from Australian Firms, 1975-99
29 Pages Posted: 26 May 2003
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Longitudinal Earnings Value Relevance and Intangible Assets: Evidence from Australian Firms, 1975-99
Date Written: January 2003
Abstract
This paper investigates the longitudinal earnings value relevance of Australian firms. Yearly cross-sectional regressions are estimated for a large sample of Australian firms for each year from 1975 through 1999. There is evidence of a decline in earnings value relevance measured by R2, and by earnings coefficients over this 25-year period, consistent with US studies. However, only losses explain much of the decline, which is inconsistent with US studies. The model used is the same as that used in prior research that report declining earnings value relevance - see Brown, Lo and Lys (1999) and Lev and Zarowin (1999). Rather than contradicting US studies like Lev and Zarowin (1999), this study provides evidence consistent with their results and conjecture. That is, capitalizers' earnings reflect relatively more information used for equity valuation than non-capitalizers' earnings. Most important is the over-time widening of the earnings value relevance "gap" between capitalizers and non-capitalizers. This is so, even in Australia's relatively unregulated reporting regime for intangibles. Results are robust to various alternative explanations and different model specifications.
Keywords: Earnings Value Relevance, Intangibles
JEL Classification: M41, G12
Suggested Citation: Suggested Citation
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