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The Value Relevance of Financial Reporting on the Oslo Stock Exchange over the Period 1964-2003

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Author Info

  • Gjerde, Øystein

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Knivsflå, Kjell Henry

    ()
    (Dept. of Accounting, Auditing and Law, Norwegian School of Economics and Business Administration)

  • Sættem, Frode

    ()
    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

This article focuses on the value relevance of financial statements in Norway over the 40-year period from 1964 to 2003. Since Norwegian generally accepted accounting principles are based on an earnings-oriented conceptual view rather than a balance-oriented conceptual framework, like the ones adopted by the IASB and the FASB, this study provides interesting empirical evidence on the value relevance of earnings-oriented conceptual frameworks. Our main finding is that the value relevance of financial reporting for investors trading on the Oslo Stock Exchange has increased significantly over the past four decades. This result is obtained by evaluating the adjusted R2-metric from a stock market return regression over time using deflated earnings and deflated change in earnings as explanatory variables, and controlling for changes in underlying economic variables over the period. A significant time trend is consistent with the view that Norwegian accounting regulators and standard setters have been successful in achieving more value relevant financial statements over time. Norway is an example where employing an earnings-oriented conceptual framework has improved the value relevance of accounting information.

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Bibliographic Info

Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2005/23.

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Length: 32 pages
Date of creation: 23 Dec 2005
Date of revision:
Handle: RePEc:hhs:nhhfms:2005_023

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Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
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Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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Keywords: Capital Markets; Financial Reporting; Equity Valuation; Value Relevance;

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  1. Lev, Baruch & Sougiannis, Theodore, 1996. "The capitalization, amortization, and value-relevance of R&D," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 107-138, February.
  2. Brown, Stephen & Lo, Kin & Lys, Thomas, 1999. "Use of R2 in accounting research: measuring changes in value relevance over the last four decades," Journal of Accounting and Economics, Elsevier, vol. 28(2), pages 83-115, December.
  3. Barth, Mary E. & Beaver, William H. & Landsman, Wayne R., 1992. "The market valuation implications of net periodic pension cost components," Journal of Accounting and Economics, Elsevier, vol. 15(1), pages 27-62, March.
  4. Barth, Mary E. & Beaver, William H. & Landsman, Wayne R., 2001. "The relevance of the value relevance literature for financial accounting standard setting: another view," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 77-104, September.
  5. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
  6. Collins, Daniel W. & Maydew, Edward L. & Weiss, Ira S., 1997. "Changes in the value-relevance of earnings and book values over the past forty years," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 39-67, December.
  7. Aasmund Eilifsen, 1996. "The relationship between accounting and taxation in Norway," European Accounting Review, Taylor & Francis Journals, vol. 5(1), pages 835-844.
  8. King, Raymond D. & Langli, John Christian, 1998. "Accounting diversity and firm valuation," The International Journal of Accounting, Elsevier, vol. 33(5), pages 529-567.
  9. Miguel Arce & Araceli Mora, 2002. "Empirical evidence of the effect of European accounting differences on the stock market valuation of earnings and book value," European Accounting Review, Taylor & Francis Journals, vol. 11(3), pages 573-599.
  10. Berger, Philip G. & Ofek, Eli & Swary, Itzhak, 1996. "Investor valuation of the abandonment option," Journal of Financial Economics, Elsevier, vol. 42(2), pages 257-287, October.
  11. Holthausen, Robert W. & Watts, Ross L., 2001. "The relevance of the value-relevance literature for financial accounting standard setting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 3-75, September.
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