Melbourne Accounting Research Seminar - Professor Mary Barth

Professor Mary Barth from Stanford University presented a MARS seminar.

Topic: Evolution in Value Relevance of Accounting Information

Abstract: We study the evolution of the value relevance of a set of twelve accounting amounts, using a methodology that automatically incorporates nonlinearities and interactions, and avoids over-fitting encountered by traditional OLS estimation. We find that more accounting amounts become value relevant over time, which is consistent with a more complex relation between equity price and accounting amounts. Operating cash flow, cash holdings, and two New Economy-related accounting amounts—recognized intangible assets and research and development expense—increase in value relevance, and earnings and dividends decrease. We find that the increase in value relevance of accounting amounts other than earnings offsets the decrease in value relevance of earnings, which is consistent with accounting amounts taken together remaining value relevant over time. We also find significant differences in value relevance of individual accounting amounts for subsamples of financial, technology, loss, and profit firms.