The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands

CentER Discussion Paper No. 2003-63

Posted: 15 Jun 2004

See all articles by Yue Wang

Yue Wang

Tilburg University - Department of Accounting & Accountancy

Willem Buijink

Tilburg University - Department of Accounting & Accountancy

R. Eken

Tilburg University - Department of Accounting & Accountancy

Date Written: 2003

Abstract

Recently the Dutch financial reporting standard setters have taken steps to make dirty surplus accounting flows more visible to parties outside firms, either by eliminating their possibility or by requiring comprehensive income type statements. These steps are presumably based on the idea that dirty surplus accounting flows are value relevant to investors and hence have to be visible to them. Whether dirty surplus accounting flows are indeed value relevant is an empirical issue. This paper therefore explores both incremental and relative value relevance of various dirty surplus accounting flows for Dutch listed firms. We find evidence that dirty surplus goodwill write-offs in particular are relevant in explaining returns and that the clean surplus earnings perform better than the reported earnings over 1-year intervals. Taken together, these 1-year interval empirical results indeed imply that the Dutch managers in the period considered wrote-off value relevant information via dirty surplus accounting flows. Over longerterm intervals, dirty surplus items are not or negatively related to returns and reported income becomes more value relevant than clean surplus income.

Keywords: Dirty surplus accounting flows, value relevance, The Netherlands

JEL Classification: G12, M41, M44, M47

Suggested Citation

Wang, Yue and Buijink, Willem F.J. and Eken, R., The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands (2003). CentER Discussion Paper No. 2003-63. Available at SSRN: https://ssrn.com/abstract=556093

Yue Wang (Contact Author)

Tilburg University - Department of Accounting & Accountancy ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Willem F.J. Buijink

Tilburg University - Department of Accounting & Accountancy ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

R. Eken

Tilburg University - Department of Accounting & Accountancy ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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