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

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  • 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
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. repec:eee:crpeac:v:44:y:2017:i:c:p:1-29 is not listed on IDEAS
    8. 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.
    9. 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.

    More about this item

    Keywords

    decision usefulness; valuation usefulness; stewardship; conservatism;

    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

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