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The Impact of Recession on the Value-relevance of Accounting Information

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  • Gregory D. Kane
  • Ryan D. Leece
  • Frederick M. Richardson
  • Uma Velury

Abstract

type="main"> The Global Financial Crisis of 2007–2008, and the subsequent global economic downturn, has heightened the need for research on whether the value-relevance of accounting information is impacted by periods of macroeconomic decline. In this study, we examine whether the occurrence of a recession impacts the value-relevance of two key accounting constructs: book value of equity and earnings. Consistent with our priors, we find that controlling for recession significantly increases the value-relevance of both the book value of equity and earnings. Our findings indicate the importance of controlling for recession in value-relevance studies. Sample periods that include recession events, and that do not incorporate such conditioning, may be mis-specified, with results difficult, if not impossible, to interpret.

Suggested Citation

  • Gregory D. Kane & Ryan D. Leece & Frederick M. Richardson & Uma Velury, 2015. "The Impact of Recession on the Value-relevance of Accounting Information," Australian Accounting Review, CPA Australia, vol. 25(2), pages 185-191, June.
    • Handle: RePEc:bla:ausact:v:25:y:2015:i:2:p:185-191
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    References listed on IDEAS

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    1. Melik Ertugrul & Volkan Demir, 2018. "How Does Unobserved Heterogeneity Affect Value Relevance?," Australian Accounting Review, CPA Australia, vol. 28(2), pages 288-301, June.
    2. Wenlian Gao, 2024. "Cash flow duration and market reactions to earnings announcements," Review of Quantitative Finance and Accounting, Springer, vol. 63(2), pages 679-714, August.
    3. Hejer Khaldi & Feten Hamama, 2024. "Value Relevance of Accounting Information in Uncertain Economic Policy Context: Evidence from Tunisia," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 23(3), pages 570-595, September.
    4. Kim, Yeonghyeon & Lee, Junyong & Lee, Kyounghun & Oh, Frederick Dongchuhl, 2024. "Corporate disclosure behavior during financial crises: Evidence from Korea," Journal of Financial Stability, Elsevier, vol. 73(C).
    5. Pilch Bartłomiej, 2024. "Have COVID-19 and the War in Ukraine Caused a Decline in the Value Relevance of Accounting Information? Evidence from Poland," Folia Oeconomica Stetinensia, Sciendo, vol. 24(2), pages 252-279.

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