The Investment Usefulness of the Value Relevance Model: International Evidence

28 Pages Posted: 12 Nov 2020 Last revised: 18 Jan 2022

Date Written: January 18, 2022


While valuation models such as the discounted cash flow model have been developed and extended, difficulties are often encountered in valuation practice because various assumptions on the factors of these models are possible. To overcome this limitation, this study uses the value relevance model to provide a valuation procedure that does not require personal assumptions. To demonstrate the usefulness of this procedure for investment worldwide, we conduct empirical analyses using the annual data of listed firms in 126 countries. We confirm that the value relevance model explains the present market value of equity. The findings show that the ratio of the estimated intrinsic value to the present market value is significantly related to future annual returns after controlling for risk factors. We also demonstrate that long–short portfolio returns based on this ratio are significantly positive and more than double of those based on popular risk factors. Considering the investment usefulness of our valuation procedure, which requires few inputs, our study contributes to reducing the effort needed for valuation practice. Although value relevance research does not focus much on its contribution to investors, our results suggest that this research stream can support investment decision-making.

Keywords: Valuation; Accounting; Value relevance; Investment usefulness

JEL Classification: G11; G32; M41

Suggested Citation

Yoshinaga, Yuto, The Investment Usefulness of the Value Relevance Model: International Evidence (January 18, 2022). Available at SSRN: or

Yuto Yoshinaga (Contact Author)

Tohoku University ( email )

Accountng School, Katahira 2-1-1
Aoba-ku, Sendai, Miyagi 980-8577

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