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Properties of accounting earnings associated with legal regime and the relative value-relevance of earnings, dividends and cash flows: evidence from American depositary receipts

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  • Tony Kang

Abstract

Prior literature finds that the properties of accounting information are associated with the legal regime of a firm's country of domicile. Extending this line of research, this study investigates whether investors rely more on other valuation parameters (e.g., dividends and cash flows) when the quality of earnings is perceived to be low. Our evidence suggests that accounting earnings (dividends and cash flows) are relatively less (more) value-relevant for code (common) law country firms whose earnings are considered to be of lower (higher) quality. Overall, our results are consistent with the view that dividends and cash flows serve as substitutes for earnings for valuation purposes and that US investors' choice of valuation model largely depends on the quality of earnings.

Suggested Citation

  • Tony Kang, 2005. "Properties of accounting earnings associated with legal regime and the relative value-relevance of earnings, dividends and cash flows: evidence from American depositary receipts," International Journal of Accounting, Auditing and Performance Evaluation, Inderscience Enterprises Ltd, vol. 2(1/2), pages 140-152.
    • Handle: RePEc:ids:ijaape:v:2:y:2005:i:1/2:p:140-152
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