Evolution in Value Relevance of Accounting Information

64 Pages Posted: 14 Mar 2017 Last revised: 29 Aug 2019

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: August 22, 2019

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 amounts and find no decline in combined value relevance from 1962 to 2014. We assess evolution in each amount’s value relevance and find increases, most notably for amounts related to intangible assets, growth opportunities, and alternative performance measures, which are important in the new economy. The number of relevant amounts also increases. We also consider separately new economy, non-new economy profit, and non-new economy loss firms. The relevance trends are more pronounced for, but extend beyond, new economy firms. We base inferences on a non-parametric approach that automatically incorporates nonlinearities and interactions, thereby unconstraining the valuation relation. Taken together, our findings reveal a more nuanced, but not declining, relation between share price and accounting information that reflects the new economy.

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 (August 22, 2019). Stanford University Graduate School of Business Research Paper No. 17-24. 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)

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