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
Date Written: April 15, 2022
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: Suggested Citation