The Value Relevance of Financial and Non-Financial Information

2017 ◽  
pp. 220-245 ◽  
Author(s):  
Amitav Saha ◽  
Sudipta Bose
Keyword(s):  
Value Relevance ◽  
Market Value ◽  
Financial Information ◽  
Market Valuation ◽  
Future Directions ◽  
Book Value ◽  
Research Framework ◽  
Market Values ◽  
Valuation Model ◽  
Different Types

Value-relevance research is an important domain of modern capital market research. Accounting researchers have used the value-relevance research framework in many ways with the aim of measuring whether accounting information has a predicted association with equity market values. One of the most widely used models in value-relevance research is a modification of the Ohlson (1995) market valuation model in which the market value of a firm's equity is presumed to be a function of its book value of equity and abnormal earnings. Furthermore, using the Ohlson (1995) model, accounting researchers have documented the value relevance of different types of financial and non-financial information. Drawing on a selected number of recently published studies that have documented the value relevance of different types of financial and non-financial information, this chapter reviews and integrates recent findings, highlighting challenges and providing future directions for further research in this area.

scholarly journals On the definition of fair value for purposes of IFRS

2021 ◽  
Vol 26 (2) ◽  
pp. 148-157
Author(s):  
Mikhail A. GORODILOV ◽  
Anna A. RADEVICH
Keyword(s):  
Comparative Analysis ◽  
Market Value ◽  
Fair Value ◽  
Market Valuation ◽  
Clear Definition ◽  
Appropriate Use ◽  
Existing Problems ◽  
Market Values ◽  
Different Types ◽  
Definition Of

Subject. This article discusses the issue of defining the Fair Value concept, its similarity and identification with the concept of Market Value. It examines the specifics of each particular value, defines the concept of Fair Value, and analyzes approaches (methods) of fair value valuation, clarifies existing problems of determining fair value for the purposes of IFRS application. Objectives. The article aims to define the notion of Fair Value and appropriate use in accounting, as well as explore approaches to assess fair value. Methods. For the study, we used a comparative analysis. Results. The article says of many inconsistencies in the valuation of fair value, starting with the lack of a clear definition of fair value in IFRS, which is actually identified with the concept of market value. It proposes a refined definition of fair value and identifies fundamental differences between fair and market values, which are based on the procedures used in their assessment. Conclusions. Fair and market values are two different types of valuation. Fair value can be the same as market value, but only if there is an active market available. There is no single concept of Fair Value presented in scientific and special literature. The same approaches are used in fair (IFRS) and market (valuation standards) assessments, but the methods described for each approach are not always the same.

Information Systems Expenditures and Firm Value

2004 ◽  
pp. 29-42 ◽  
Author(s):  
Ram S. Sriram ◽  
Gopal V. Krishnan ◽  
Kam-Wah Lai
Keyword(s):  
Information System ◽  
Competitive Advantage ◽  
Financial Services ◽  
Firm Value ◽  
Value Relevance ◽  
Market Value ◽  
Positive Association ◽  
Financial Information ◽  
Services Sector ◽  
Financial Services Sector

This chapter examines the value relevance of disclosures about IT expenditures. Using information about the amount of consulting fees paid to the incumbent auditor by their clients for designing and developing a financial information system (FIS), the study examines whether there is an association between market value of equity and IT expenditures. Since the financial services industry is an intensive user of IT and often relies on IT as a source of competitive advantage, the study uses a sample of firms from the financial services sector. This chapter contributes to our understanding of the importance of disclosures about IT expenditures in assessment of firm value. The results show positive association between investments in IT and market value of equity. Overall, the findings support the notion that investors perceive investments in IT as value-relevant.

Enhanced business reporting: value relevance and determinants of valuation-related disclosures

2017 ◽  
Vol 18 (4) ◽  
pp. 832-867 ◽  
Author(s):  
Christine Reitmaier ◽  
Wolfgang Schultze
Keyword(s):  
Decision Making ◽  
Content Analysis ◽  
Value Relevance ◽  
Annual Reports ◽  
Valuation Theory ◽  
Voluntary Disclosures ◽  
Content Type ◽  
Book Value ◽  
Business Reporting ◽  
Market Values

Purpose Enhanced business reporting (EBR) seeks to address the information needs of investors when making company valuations for investment decisions. The purpose of this paper is to analyze the relevance for market valuation of EBR disclosures that are directly related to firm valuation (value-based reporting (VBR)). Design/methodology/approach Data are hand collected from annual reports of German publicly listed companies over five years. The content analysis is based on the valuation-related disclosure framework of the German Schmalenbach Society of Business Administration. A 2SLS approach accounts for potential endogeneity. Findings Share-based compensation, leverage, corporate size, and share volatility are significant determinants of VBR. The level of VBR is significantly associated with market values and provides additional market value explanatory power, indicating its relevance to investors in the process of valuation and decision making. Also, the relevance of book value and earnings for explaining market values increases for firms with better VBR. The findings are robust to the exclusion of banks and assurance companies and to alternative model and variable specifications. Research limitations/implications The research contributes to the literature on voluntary disclosures by testing an EBR framework explicitly derived from valuation theory. The results provide indirect evidence of the investors’ use of respective valuation techniques in decision making. A contribution is made to the value relevance literature by showing that valuation-related disclosures constitute a suitable proxy for “other information” in the Ohlson’s (1995) model. Such disclosures complement traditional accounting metrics, i.e. book value and earnings, as basis for valuations. Potential caveats relate to the content analysis of annual reports and the endogeneity of voluntary disclosures. Originality/value This paper informs the debate on further developments of EBR in helping to identify important components thereof.

Does institutional ownership affect the value relevance of accounting information?

2020 ◽  
Vol 28 (2) ◽  
pp. 323-342
Author(s):  
Mohamed Omran ◽  
Yasean A. Tahat
Keyword(s):  
Value Relevance ◽  
Accounting Information ◽  
Market Value ◽  
Institutional Ownership ◽  
Financial Leverage ◽  
Content Type ◽  
Book Value ◽  
Share Prices ◽  
Listed Firms ◽  
Positive Effects

Purpose Drawing upon agency theory, this study aims to assess the value relevance (VR) of accounting information released by non-financial firms listed on the Kuwait stock exchange for the period of 2015-2018. Also, the influence of institutional ownership level and other explanatory variables, namely, book value per share, earnings per share, growth in assets and changes in financial leverage on share prices is examined. Design/methodology/approach To test the hypotheses, the Ohlson (1995) model is extended. This study uses panel data analysis and applies appropriate statistical techniques to measure empirical relationships. Findings The results show that the VR of accounting information released by the Kuwaiti non-financial listed firms varies over the period of 2015-2018. Book value and earnings have significant and positive effects on share prices. In recent years, the VR of book value information has been growing, while that of earnings information has been declining. Institutional ownership level has a significant and positive influence on the VR of accounting information released by the Kuwaiti non-financial listed firms. The findings confirm a positive power, signalling growth in assets regarding the share prices. However, no significant relationship between changes in financial leverage and share prices is found. Practical implications The findings of the study provide evidence of the linkage between VR and institutional ownership level, which promotes the understanding of the influence of institutional investors on a firm’s market value. Empirical evidence from Kuwait will have international implications and can serve as a guide for accounting researchers studying other emerging markets. Capital market regulators can provide guidelines in the form of information characteristics and elements of financial statements that need improvement. Finally, the findings assist non-financial listed firms to enhance the quality of accounting information by identifying the strengths and weaknesses in their financial reports. Originality/value This study extends the previous literature by investigating a relatively new set of data in more depth than that has been examined by prior research, which focusses on the relationship between accounting information and the firm’s market value.

The Value Relevance of Financial Statement Recognition vs. Disclosure: Evidence from SFAS No. 106

1999 ◽  
Vol 74 (4) ◽  
pp. 403-423 ◽  
Author(s):  
Paquita Y. Davis-Friday ◽  
L. Buky Folami ◽  
Chao-Shin Liu ◽  
H. Fred Mittelstaedt
Keyword(s):  
Value Relevance ◽  
Market Value ◽  
Financial Statements ◽  
The Body ◽  
Financial Statement ◽  
Financial Reports ◽  
Association Tests ◽  
Market Values ◽  
Value Association

This study examines whether the market values financial statement data differently if it is disclosed instead of recognized in the body of the financial statements. We identify a sample of 229 SFAS No. 106 adopters who disclose an estimate of their anticipated liability for retiree benefits other than pensions (PRB) in their financial reports prior to the year of recognition. We then test whether the disclosed estimate of the PRB liability is valued differently by the market than is the subsequently recognized PRB liability. We provide modest and model-sensitive evidence that the recognized PRB liability receives more weight than the disclosed liability in market value association tests.

Value relevance and market valuation of assets measured using IFRS and US GAAP in the US equity market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Michael Cipriano ◽  
Elizabeth T. Cole ◽  
John Briggs
Keyword(s):  
Financial Reporting ◽  
Value Relevance ◽  
The United States ◽  
Market Valuation ◽  
International Studies ◽  
Content Type ◽  
Generally Accepted Accounting Principles ◽  
Book Value ◽  
The Difference ◽  
Us Gaap

Purpose Studies show firms reporting using Generally Accepted Accounting Principles in the United States (US GAAP) and International Financial Reporting Standards (IFRS) are similarly valued in the market, however, these studies are limited due to the noise present in international studies from regulatory differences. This study aims to eliminate much of this noise by using a cleaner sample of all listings with the Securities Exchange Commission (SEC). This paper also looks at more detailed book value figures. Design/methodology/approach There have been previous studies on the differences in market valuation of firms reporting using IFRS vs US GAAP. Most of this research is confounded with difficulties due to different regulatory environments and volatile time periods. The study uses cleaner data following the SEC’s acceptance of IFRS financials without a 20-F Reconciliation. The authors use a large sample of non-US firms trading on US exchanges choosing to use either US GAAP or IFRS for SEC reporting purposes. The sample period starts two years after the SEC’s acceptance of IFRS financials without a 20-F reconciliation and is larger than earlier samples. Findings The authors show that there is no difference between IFRS and US GAAP firms’ overall value relevance, however, earnings are more value relevant when measured using IFRS and book value is more value relevant when measured using US GAAP. The authors find that the difference between US GAAP and IFRS can be explained, at least in part, by greater market multiples being placed on inventories and goodwill using US GAAP. This is offset in part by greater multiples being placed on other assets under IFRS. Originality/value The authors replicate earlier studies but also extend with a better sample and more detailed finings.

Tracks

2002 ◽  
Vol 17 (4) ◽  
pp. 351-373 ◽  
Author(s):  
Marta Ballester ◽  
Joshua Livnat ◽  
Nishi Sinha
Keyword(s):  
Human Capital ◽  
Market Value ◽  
Capital Asset ◽  
Financial Reports ◽  
Book Value ◽  
Market Values ◽  
Residual Income Valuation ◽  
The Difference ◽  
Selective Disclosure

This study examines the selective disclosure of labor-related costs by U.S. firms and estimates the proportion of these costs that the market values as an investment in human capital. Labor-related costs are separately identified in the financial reports of only a small fraction of all U.S. Compustat firms. Larger firms, firms in industries that are regulated, are more labor-intensive, and have relatively little competition are more likely to report these costs voluntarily. Using a modification of the residual income valuation framework with a sample of firms that consistently disclosed their labor-related costs, the study finds that for these firms about 16 percent of all such costs represent an investment in human capital, and that about a third of this asset depreciates annually. Further, the human capital asset averages about 5 percent of the total market value of the firm and accounts for about 16 percent of the difference between market and book value. The ratio of the human capital asset to market value is found to be positively related to operating uncertainty, industry concentration, and industry-adjusted average compensation paid to employees. The human capital asset is also positively associated with analysts' long-term forecasts of earnings.

The Persistence and Market Valuation of Recurring Nonrecurring Items

2010 ◽  
Vol 85 (5) ◽  
pp. 1577-1615 ◽  
Author(s):  
William Cready ◽  
Thomas J. Lopez ◽  
Craig A. Sisneros
Keyword(s):  
Market Value ◽  
The Other ◽  
Market Valuation ◽  
Future Earnings ◽  
Special Items ◽  
Market Values

ABSTRACT: This study focuses on the persistence and market value implications of a subset of nonrecurring charges that are atypical due to repeated occurrence. The increased recurrence of supposedly nonrecurring items perhaps reflects managerial shifting of (more permanent) ordinary expenses to a transitory category or, alternatively, may reflect an environment where these items naturally occur more frequently. Either scenario suggests that these repetitive charges have future earnings implications dramatically different from truly nonrecurring events and should therefore be valued more like a recurring component of earnings. Consistent with this notion, we find that as the frequency of reporting negative special items increases (measured by the presence of multiple prior charges), the persistence of these items significantly increases with respect to future earnings. Our evidence also suggests that the valuation multiple on such charges increases with frequency. That is, the market values “recurring nonrecurring” items more like the other components of recurring earnings.

scholarly journals Investigation on the value relevance of accounting information: evidence from incorporated companies in the Singapore capital market

2016 ◽  
Vol 13 (3) ◽  
pp. 9-21 ◽  
Author(s):  
Basil Abeifaa Der ◽  
Petr Polak ◽  
Masairol Masri
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Capital Market ◽  
Value Relevance ◽  
Accounting Information ◽  
Book Value ◽  
Valuation Model ◽  
Long Run ◽  
Short Run ◽  
Asset Turnover

The purpose of this study is to investigate the relative, incremental and the systematic changes in value relevance of the accounting information. This study also attempts to investigate the effect of earnings management on the value relevance of accounting information. It basically uses Ohlson’s (1995) valuation model to test the conceptual framework. The findings of this paper reveal that book value is more value relevant and incremental followed by earnings and, then, cash flow. Cash flow, however, performs a lesser valuation role. The results also show that combined book value and earnings are more value relevant than combined book value and cash flow. As a third contribution, the paper also finds that the value relevance of some accounting variables has increased over time, while others showed no evidence of their inclined or declined patterns in the value relevance of accounting information. Finally, the paper finds that earnings management has no effect on the value relevance of accounting information. Further analyses suggest that earnings management is opportunistic in the short run, but efficient in the long run, when firms are small or have high asset turnover

Sign in / Sign up

Export Citation Format

Share Document