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Changes in the Value-Relevance of Earnings and Book Values over the Past Forty Years

Posted: 4 Nov 1996  

Daniel W. Collins

University of Iowa - Department of Accounting

Edward L. Maydew

University of North Carolina at Chapel Hill

Ira S. Weiss

University of Chicago - Graduate School of Business; Columbia Business School - Department of Accounting

Date Written: September 1996

Abstract

This paper investigates systematic changes in the value-relevance of earnings and book values over time. We report three primary findings. First, contrary to claims in the professional literature, the combined value-relevance of earnings and book values has not declined over the past forty years and, in fact, appears to have increased slightly. Second, while the incremental value-relevance of "bottom line" earnings has declined, it has been replaced by increasing value-relevance of book values. Finally, much of the shift in value-relevance from earnings to book values can be explained by the increasing frequency and magnitude of one-time items, the increasing frequency of negative earnings, and changes in average firm size across time.

JEL Classification: M41

Suggested Citation

Collins, Daniel W. and Maydew, Edward L. and Weiss, Ira S., Changes in the Value-Relevance of Earnings and Book Values over the Past Forty Years (September 1996). Available at SSRN: https://ssrn.com/abstract=2791

Daniel W. Collins (Contact Author)

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0912 (Phone)
319-335-1956 (Fax)

Edward L. Maydew

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)

HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew

Ira Samuel Weiss

University of Chicago - Graduate School of Business ( email )

5807 S. Woodlawn Ave
Chicago, IL 60637
United States

Columbia Business School - Department of Accounting ( email )

3022 Broadway
622 Uris Hall
New York, NY 10027
United States

HOME PAGE: http://www.gsb.columbia.edu/divisions/accounting/iweiss

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