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Differential Changes In The Value-Relevance Of Earnings And Book Values Over Time: Financial Versus Other Industries

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  • Sharad Asthana

    (The University of Texas at San Antonio)

  • Lucy Huajing Chen

    (Arizona State University)

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    Abstract

    We investigate the change in the value-relevance of earnings and book value information in the financial industry compared to other industries from 1970 to 2005. Prior literature provides mixed evidence as to whether value-relevance reduces over time. Using Ohlson’s model, we find increasing value-relevance for earnings and book value for the financial and other industries. However, the increasing trend is less evident for financial firms. More importantly, we document that the slower growth trend for the financial industry improves compared to other industries after firms adopt SFAS 133 (as amended by SFAS 137 and 138) in 2001. Financial institutions typically hold more derivative instruments and hedging portfolios than other industries. Our results are thus consistent with the view that SFAS 133 may help financial institutions improve the value-relevance of accounting information. Our results have implication for policy makers when they evaluate the benefit of SFAS 133.

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    File URL: http://business.utsa.edu/wps/acc/0026ACC-501-2007.pdf
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    Bibliographic Info

    Paper provided by College of Business, University of Texas at San Antonio in its series Working Papers with number 0026.

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    Length: 29 pages
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    Handle: RePEc:tsa:wpaper:0026

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    Related research

    Keywords: Value-relevance; accounting information; comparative change; SFAS 133; financial industry; non-financial industry.;

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    References

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    1. Wayne R. Landsman, 2002. "Has the Information Content of Quarterly Earnings Announcements Declined in the Past Three Decades?," Journal of Accounting Research, Wiley Blackwell, vol. 40(3), pages 797-808, 06.
    2. 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.
    3. 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.
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