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

Posted: 2 Oct 2001

See all articles by Robert W. Holthausen

Robert W. Holthausen

University of Pennsylvania - Accounting Department

Ross L. Watts

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

Multiple version iconThere are 2 versions of this paper

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.

JEL Classification: M41, M44, G12

Suggested Citation

Holthausen, Robert W. and Watts, Ross L., The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting. Journal of Accounting & Economics, Vol. 31, Nos. 1-3, September 2001. Available at SSRN: https://ssrn.com/abstract=284161

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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