IDEAS home Printed from https://ideas.repec.org/p/hum/wpaper/sfb649dp2008-028.html
   My bibliography  Save this paper

Are stewardship and valuation usefulness compatible or alternative objectives of financial accounting?

Author

Listed:
  • Joachim Gassen

Abstract

In their joint framework project, the FASB and the IASB recently proposed dropping stewardship as a separate objective of financial accounting, because the Boards view stewardship and valuation usefulness as compatible sub-objectives ranking under an overall objective of decision usefulness. This paper puts this conjecture to an empirical test. As it is widely agreed that asymmetric timely earnings increase the contractual efficiency of accounting information, I first test whether firms with more asymmetric timely earnings produce more valuation-useful financial accounting information. Second, I test whether firms with more influential non-equity stakeholders provide more valuation-useful financial accounting information. As non-equity stakeholders in general face higher transaction costs when diversifying unsystematic risk compared to equity stakeholders and as stewardship-related risks should be at least in part unsystematic, I expect the demand for stewardship-related accounting information to increase with the influence of non-equity stakeholders. Using a broad sample of U.S. firms and a set of firm-specific metrics for valuation usefulness based on short-window capital market reactions to quarterly earnings announcements, I document that the valuation usefulness of financial accounting information is consistently negatively related to its stewardshiporientation. I conclude from these analyses that valuation usefulness and stewardship are alternative objectives of financial accounting.

Suggested Citation

  • Joachim Gassen, 2008. "Are stewardship and valuation usefulness compatible or alternative objectives of financial accounting?," SFB 649 Discussion Papers SFB649DP2008-028, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    • Handle: RePEc:hum:wpaper:sfb649dp2008-028
    as

    Download full text from publisher

    File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2008-028.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. DeFond, Mark & Hung, Mingyi & Trezevant, Robert, 2007. "Investor protection and the information content of annual earnings announcements: International evidence," Journal of Accounting and Economics, Elsevier, vol. 43(1), pages 37-67, March.
    2. Benston, George J & Smith, Clifford W, Jr, 1976. "A Transactions Cost Approach to the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 31(2), pages 215-231, May.
    3. Beaver, Wh, 1968. "Information Content Of Annual Earnings Announcements," Journal of Accounting Research, Wiley Blackwell, vol. 6, pages 67-92.
    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. Darren T. Roulstone, 2003. "Analyst Following and Market Liquidity," Contemporary Accounting Research, John Wiley & Sons, vol. 20(3), pages 552-578, September.
    6. John Christensen & Joel S. Demski, 2004. "Asymmetric Monitoring: Good Versus Bad News Verification," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 56(3), pages 206-222, July.
    7. Lesmond, David A & Ogden, Joseph P & Trzcinka, Charles A, 1999. "A New Estimate of Transaction Costs," The Review of Financial Studies, Society for Financial Studies, vol. 12(5), pages 1113-1141.
    8. Lambert, Richard A., 2001. "Contracting theory and accounting," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 3-87, December.
    9. 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.
    10. Krinsky, Itzhak & Lee, Jason, 1996. "Earnings Announcements and the Components of the Bid-Ask Spread," Journal of Finance, American Finance Association, vol. 51(4), pages 1523-1535, September.
    11. Isabelle Huault & V. Perret & S. Charreire-Petit, 2007. "Management," Post-Print halshs-00337676, HAL.
    12. Wayne R. Landsman & Edward L. Maydew, 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, June.
    13. Robert Bushman & Ellen Engel & Abbie Smith, 2006. "An Analysis of the Relation between the Stewardship and Valuation Roles of Earnings," Journal of Accounting Research, Wiley Blackwell, vol. 44(1), pages 53-83, March.
    14. Kim, Son Ku, 1995. "Efficiency of an Information System in an Agency Model," Econometrica, Econometric Society, vol. 63(1), pages 89-102, January.
    15. Francis, J & Schipper, K, 1999. "Have financial statements lost their relevance?," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 319-352.
    16. Hirshleifer, Jack, 1973. "Where Are We in the Theory of Information?," American Economic Review, American Economic Association, vol. 63(2), pages 31-39, May.
    17. 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.
    18. Frankel, Richard & Kothari, S.P. & Weber, Joseph, 2006. "Determinants of the informativeness of analyst research," Journal of Accounting and Economics, Elsevier, vol. 41(1-2), pages 29-54, April.
    19. Joachim Gassen & Rolf Uwe Fulbier & Thorsten Sellhorn, 2006. "International Differences in Conditional Conservatism - The Role of Unconditional Conservatism and Income Smoothing," European Accounting Review, Taylor & Francis Journals, vol. 15(4), pages 527-564.
    20. Qi Chen & Thomas Hemmer & Yun Zhang, 2007. "On the Relation between Conservatism in Accounting Standards and Incentives for Earnings Management," Journal of Accounting Research, Wiley Blackwell, vol. 45(3), pages 541-565, June.
    21. Christensen, Peter O. & Feltham, Gerald A. & Sabac, Florin, 2005. "A contracting perspective on earnings quality," Journal of Accounting and Economics, Elsevier, vol. 39(2), pages 265-294, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. George Drymiotes & Thomas Hemmer, 2013. "On the Stewardship and Valuation Implications of Accrual Accounting Systems," Journal of Accounting Research, Wiley Blackwell, vol. 51(2), pages 281-334, May.
    2. Chi, Wuchun & Wang, Chenchin, 2010. "Accounting conservatism in a setting of Information Asymmetry between majority and minority shareholders," The International Journal of Accounting, Elsevier, vol. 45(4), pages 465-489, December.
    3. David B. Sutton & Carolyn J. Cordery & Tony Zijl, 2015. "The Purpose of Financial Reporting: The Case for Coherence in the Conceptual Framework and Standards," Abacus, Accounting Foundation, University of Sydney, vol. 51(1), pages 116-141, March.
    4. Aust, Viktoria & Pelger, Christoph & Drefahl, Christian, 2021. "Exploring the relationship between valuation and stewardship uses of accounting information: Empirical evidence from German listed firms," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    5. Joachim Gassen, 2009. "Finanzkrise: die Rolle der Rechnungslegung," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 78(1), pages 83-95.
    6. Fülbier, Rolf Uwe & Klein, Malte, 2013. "Financial accounting and reporting in Germany: A case study on German accounting tradition and experiences with the IFRS adoption," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2013-01, University of Bayreuth, Chair of Finance and Banking.
    7. Ulf Br&?ggemann & J?rg-Markus Hitz & Thorsten Sellhorn, 2013. "Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research," European Accounting Review, Taylor & Francis Journals, vol. 22(1), pages 1-37, May.
    8. Murphy, Tim & O’Connell, Vincent & Ó hÓgartaigh, Ciarán, 2013. "Discourses surrounding the evolution of the IASB/FASB Conceptual Framework: What they reveal about the “living law” of accounting," Accounting, Organizations and Society, Elsevier, vol. 38(1), pages 72-91.
    9. Rolf Uwe Fülbier & Joerg‐Markus Hitz & Thorsten Sellhorn, 2009. "Relevance of Academic Research and Researchers' Role in the IASB's Financial Reporting Standard Setting," Abacus, Accounting Foundation, University of Sydney, vol. 45(4), pages 455-492, December.
    10. Murphy, Tim & O’Connell, Vincent, 2017. "Challenging the dominance of formalism in accounting education: An analysis of the potential of stewardship in light of the evolution of legal education," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 44(C), pages 1-29.
    11. Inge Wulf & Jens Niemöller & Natalia Rentzsch, 2014. "Development toward integrated reporting, and its impact on corporate governance: a two-dimensional approach to accounting with reference to the German two-tier system," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 25(2), pages 135-164, October.
    12. Christoph Kuhner & Christoph Pelger, 2015. "On the Relationship of Stewardship and Valuation—An Analytical Viewpoint," Abacus, Accounting Foundation, University of Sydney, vol. 51(3), pages 379-411, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. S. P. Kothari & Charles Wasley, 2019. "Commemorating the 50‐Year Anniversary of Ball and Brown (1968): The Evolution of Capital Market Research over the Past 50 Years," Journal of Accounting Research, Wiley Blackwell, vol. 57(5), pages 1117-1159, December.
    2. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    3. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    4. Rolf Uwe Fülbier & Joerg‐Markus Hitz & Thorsten Sellhorn, 2009. "Relevance of Academic Research and Researchers' Role in the IASB's Financial Reporting Standard Setting," Abacus, Accounting Foundation, University of Sydney, vol. 45(4), pages 455-492, December.
    5. Kothari, S.P. & Ramanna, Karthik & Skinner, Douglas J., 2010. "Implications for GAAP from an analysis of positive research in accounting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 246-286, December.
    6. Gjerde, Øystein & Knivsflå, Kjell Henry & Sættem, Frode, 2005. "The Value Relevance of Financial Reporting on the Oslo Stock Exchange over the Period 1964-2003," Discussion Papers 2005/23, Norwegian School of Economics, Department of Business and Management Science.
    7. Araceli Mora & Martin Walker, 2015. "The implications of research on accounting conservatism for accounting standard setting," Accounting and Business Research, Taylor & Francis Journals, vol. 45(5), pages 620-650, August.
    8. Pierre Thijssen, Maximiliaan Willem & Iatridis, George Emmanuel, 2016. "Conditional conservatism and value relevance of financial reporting: A study in view of converging accounting standards," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 48-70.
    9. Misund, Bård & Asche, Frank & Osmundsen, Petter, 2008. "Industry upheaval and valuation: Empirical evidence from the international oil and gas industry," The International Journal of Accounting, Elsevier, vol. 43(4), pages 398-424, December.
    10. Vinay Goyal & Subrata K. Mitra, 2022. "Is the asymmetric impact of aggregate revenue and aggregate earnings on the stock index in accordance with the prospect theory?," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 200-222, March.
    11. Veith, Stefan & Werner, Jörg R., 2014. "Comparative Value Relevance Studies: Country Differences Versus Specification Effects," The International Journal of Accounting, Elsevier, vol. 49(3), pages 301-330.
    12. Beaver, William H. & McNichols, Maureen F. & Wang, Zach Z., 2020. "Increased market response to earnings announcements in the 21st century: An Empirical Investigation," Journal of Accounting and Economics, Elsevier, vol. 69(1).
    13. Rolf Uwe Fülbier & Thorsten Sellhorn, 2023. "Understanding and improving the language of business: How accounting and corporate reporting research can better serve business and society," Journal of Business Economics, Springer, vol. 93(6), pages 1089-1124, August.
    14. Goncharov, Igor & Werner, Joerg R. & Zimmermann, Jochen, 2009. "Legislative demands and economic realities: Company and group accounts compared," The International Journal of Accounting, Elsevier, vol. 44(4), pages 334-362, December.
    15. Tae Choi & Jinchul Jung, 2008. "Ethical Commitment, Financial Performance, and Valuation: An Empirical Investigation of Korean Companies," Journal of Business Ethics, Springer, vol. 81(2), pages 447-463, August.
    16. Karampinis, Nikolaos I. & Hevas, Dimosthenis L., 2011. "Mandating IFRS in an Unfavorable Environment: The Greek Experience," The International Journal of Accounting, Elsevier, vol. 46(3), pages 304-332, September.
    17. Ruch, George W. & Taylor, Gary, 2015. "Accounting conservatism: A review of the literature," Journal of Accounting Literature, Elsevier, vol. 34(C), pages 17-38.
    18. Ray Ball & Lakshmanan Shivakumar, 2008. "How Much New Information Is There in Earnings?," Journal of Accounting Research, Wiley Blackwell, vol. 46(5), pages 975-1016, December.
    19. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    20. Fargher, Neil & Wee, Marvin, 2019. "The impact of Ball and Brown (1968) on generations of research," Pacific-Basin Finance Journal, Elsevier, vol. 54(C), pages 55-72.

    More about this item

    Keywords

    decision usefulness; valuation usefulness; stewardship; conservatism;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2008-028. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: RDC-Team (email available below). General contact details of provider: https://edirc.repec.org/data/sohubde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.