On the Intertemporal Value Relevance of Conventional Financial Accounting in Australia

24 Pages Posted: 11 Dec 2007

See all articles by Mark Brimble

Mark Brimble

Griffith University - School of Accounting, Banking and Finance - Nathan and Logan Campuses; Centre for Financial Independence and Education

Allan Hodgson

University of Queensland - Faculty of Business, Economics and Law; Financial Research Network (FIRN)

Abstract

This paper examines whether the relevance of conventional (earnings focused) accounting information for valuation has declined in Australia over a recent period of 28 years. Motivation is provided by the anecdotal concerns of financial analysts, accounting regulators, and a cluster of US centric academic research papers that conclude that the relevance of financial accounting (and earnings in particular) has declined over time. After controlling for nonlinearities and stock price inefficiencies, we find that the value relevance of core accounting earnings has not declined. A possible exception is found for small stocks. We also observe that net book values are relatively less important in Australia when compared to the USA. Our results are informative for investors who require feedback on valuation issues and the International Accounting Standards Board regulators in any further moves towards a balance sheet focus.

JEL Classification: G29, G12, M41, M44, M47

Suggested Citation

Brimble, Mark and Hodgson, Allan C., On the Intertemporal Value Relevance of Conventional Financial Accounting in Australia. Accounting & Finance, Vol. 47, No. 4, pp. 599-622, December 2007, Available at SSRN: https://ssrn.com/abstract=1067089 or http://dx.doi.org/10.1111/j.1467-629X.2007.00241.x

Mark Brimble (Contact Author)

Griffith University - School of Accounting, Banking and Finance - Nathan and Logan Campuses ( email )

University Drive
Logan, Queensland 4131
Australia
(07) 373 55311 (Phone)

Centre for Financial Independence and Education ( email )

Brisbane, Queensland 4111
Australia

Allan C. Hodgson

University of Queensland - Faculty of Business, Economics and Law ( email )

4072 Brisbane, Queensland
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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