Evolution in Value Relevance of Accounting Information

Forthcoming, The Accounting Review doi.org/10.2308/TAR-2019-0521

55 Pages Posted: 14 Mar 2017 Last revised: 22 Apr 2022

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

Ken Li

McMaster University - Michael G. DeGroote School of Business

Charles McClure

University of Chicago Booth School of Business

Date Written: April 15, 2022

Abstract

We address how value relevance of accounting information evolved as the new economy developed. Prior research concludes accounting information—primarily earnings—has lost relevance. We consider more accounting items and find no decline in combined value relevance from 1962 to 2018. We assess evolution in each item’s value relevance and find increases, most notably for items related to intangible assets, growth opportunities, and alternative performance measures, which are important in the new economy. The number of relevant items also increases. We also consider separately new economy, old economy profit, and old economy loss firms. The trends are more pronounced for, but extend beyond, new economy firms. We base inferences on a non-parametric approach that does not require specifying the valuation relation. Taken together, our findings reveal an evolution to a more nuanced, but not declining, relation between accounting information and share price.

Keywords: Capital Markets, Classification and Regression Trees, Equity Valuation, Financial Reporting, Value Relevance

JEL Classification: C14, G10, G18, M40, M41

Suggested Citation

Barth, Mary E. and Li, Ken and McClure, Charles, Evolution in Value Relevance of Accounting Information (April 15, 2022). Forthcoming, The Accounting Review doi.org/10.2308/TAR-2019-0521, Available at SSRN: https://ssrn.com/abstract=2933197 or http://dx.doi.org/10.2139/ssrn.2933197

Mary E. Barth

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

Ken Li

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Charles McClure (Contact Author)

University of Chicago Booth School of Business ( email )

7737024885 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
4,711
Abstract Views
14,118
rank
2,647
PlumX Metrics