Master’s Thesis The value relevance of accounting information in the Netherlands Ruud Klijn Student number 0237558 MSc in Accountancy UvA Final draft June 2008 First Supervisor: Dr Georgios Georgakopoulos Second Supervisor: Dr Igor Goncharov Table of contents Abstract Samenvatting Introduction p Financial statements p Value relevance p 17 Related literature p 19 Research method p 30 5.1 Methodology p 30 5.2 Sample selection p 34 Empirical results p 35 Summary and Conclusions p 40 References Abstract This thesis investigates the value relevance of earnings and book values over time for firms in the Netherlands over the time period 1998-2007 The existing accounting literature argues that there is a decline in value relevance of accounting information due to the wholesale changes in the economy and the inability of accounting standards to reflect these changes in the financial statements This thesis focuses on the Dutch market, because there is little research on the value relevance of accounting information in the Netherlands The results show that the value relevance of earnings and book value of equity, individually or together, does not decline over the sample period More specifically, this provides evidence that the value relevance of accounting information is not significantly changing over the period 1998-2007 Samenvatting Deze scriptie onderzoekt de waarderelevantie van inkomsten en boekwaarden over een tijdsperiode van 1998-2007 voor bedrijven in Nederland De bestaande literatuur debatteert dat er een daling in relevantie van financiële informatie is, doordat er grote veranderingen in de economie zijn en door het onvermogen van boekhoudingsnormen om zich aan te passen op deze veranderingen in de financiële rapporten Deze scriptie focust zich op de Nederlandse markt, omdat er weinig onderzoek is gedaan naar de waarderelevantie van financiële informatie in Nederland De resultaten laten zien dat de waarderelevantie van inkomsten en boekwaarden van eigen vermogen, individueel of samen, niet gedaald is in Nederland over de periode 1998-2007 Specifieker, dit verstrekt bewijsmateriaal dat de waarderelevantie van financiële informatie niet significant is gedaald over de periode 1998-2007 Introduction This paper investigates changes in the value relevance of earnings and book values of the past 10 years for companies in the Netherlands My research is motivated by other research on the value-relevance of earnings and book values and related claims from the professional community, like Collins et al (1997), and Francis and Schipper (1999) There appears to be a widespread impression that historical cost financial statements have lost their value-relevance because of wholesale changes in the economy In particular, many (Elliot and Jacobson, 1999; Jenkins, 1994; and Rimerman, 1990) claim that the shift form an industrialized economy to a high-tech, service-oriented economy has rendered traditional financial statements less relevant for assessing shareholder value (Collins et al., 1997) The Ohlson (1995) valuation model provides the basis for investigating the value relevance of earnings and book values over time This model expresses price as a linear function of both earnings and book value of equity According to the accounting literature, book value is important in the valuation models for three reasons (GornikTomaszewski and Jermakowicz, 2001) The first reason is that book values proxies for expected future normal earnings Second, for financially distressed firms, book value is perceived as a proxy for a firm’s liquidation value (Berger et al., 1996; Barth et al., 1996; Burgstahler and Dichev, 1997; Collins et al., 1999) The third and last reason is that book value can be perceived simply a control for scale differences in a cross-sectional valuation equation (Barth and Kallapur, 1996) I estimate yearly regressions for the period 1998-2007 and the adjusted R² is used as the primary metric to measure value relevance The total explanatory power of earnings and book values is then decomposed into three components; (1) the incremental explanatory power of earnings, (2) the incremental explanatory power of book value, and (3) the explanatory power common to both earnings and book value I use this decomposition to investigate whether the value relevance of accounting information has changed over time To test this, the obtained R² statistics will be regressed on a time-trend variable The findings are consistent with the results of Amir and Lev (1996), that the value relevance of accounting information has not declined for Dutch firms over the period 1998-2007 The results here show that the incremental power of earnings and the incremental explanatory power of book values is not significantly changing over time It also illustrates that the combined explanatory power of earnings and book values is not significantly changing The remainder of the thesis is as follows Section describes the topic financial statements and section will explain the definition of value relevance Section outlines previous research on the value relevance of accounting information over time Section explains the models used and the data selection Section presents the results and section presents the conclusions, limitations and future research Financial statements This section will describe the topic financial statements It explains why users need financial information and what the objectives are of financial statements To explain these objectives I will describe the qualitative characteristics of the FASB and IASB framework in 2008 (FASB, 2008) These characteristics are explained to make information useful to users and to meet the objectives of financial statements Financial statements are summaries of monetary data about an enterprise The most common financial statements include an income statement that describes the operating performance during a time period, a balance sheet that states the firm’s assets and how they are financed, a cash flow statement that summarizes the cash flows of the firm, and a statement of changes in equity that outlines the sources of changes in equity during the period between two consecutive balance sheets (Palepu and Healy, 2007) According to the FASB framework (2008), “the objective of financial statements is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers Information that is decision useful to capital providers may also be useful to other users of financial reporting who are not capital providers” The information provided by financial reporting focuses on the needs of all capital providers, the people with a claim to the entity’s resources, not just the needs of a particular group Management is accountable for the custody and safekeeping of the entity’s economic resources and for their efficient and profitable use They are also responsible, to the extent possible, for protecting the entity’s economic resources from unfavorable effects such as price, technological and social changes Another responsibility is that the entity complies with the laws and regulations Management’s performance in discharging its responsibilities, often referred to as stewardship responsibilities, particularly is important to existing equity investors when making decisions in their capacity as owners about whether to replace or reappoint management, how to compensate management, and how to vote on shareholder proposals about management’s policies and other matters (FASB, 2008) An entity obtains economic resources from capital providers in exchange for claims to those resources Because of those claims, capital providers have the need of financial information about the economic resources of an entity Accordingly, financial reporting should provide information about the economic resources, and the claims to those resources Capital providers include equity investors, lenders, and other creditors, who have common information needs (FASB, 2008) 1) Equity investors: equity investors include holders of equity securities, holders of partnership interests, and other equity owners Equity investors are directly interested in the amount, timing, and uncertainty of an entity’s future cash flows, because they generally invest economic resources in an entity with the expectation to receive more cash than they provided and increases in the share prices or other ownership interests Equity investors often have the right to vote on management actions and therefore are interested in how well the directors and management of the entity have discharged their responsibility to make efficient and profitable use of the assets entrusted to them (FASB, 2008) 2) Lenders: lenders provide financial capital to an entity by lending it economic resources They expect to receive a return in the form of interest, repayments of borrowings, and prices increases of debt instruments Lenders are also interested in the amount, timing, and uncertainty of an entity’s future cash flows and may have the right to influence or approve some management actions 3) Other creditors: other groups that provide resources as a consequence of their relationship with an entity are, for example, employees that provide human capital in exchange for a salary or other compensation Another example are suppliers that may extend credit to facilitate a sale A third example is a customer that may prepay for goods or services to be provided by the entity To the extent that employees, suppliers, customers, or other groups make decisions relating to providing capital to the entity in the form of credit, they are capital providers Financial statement information is very important for users because they have no direct access to accounting records, they must depend on the information contained in the reports Financial statements are the primary means of communicating important accounting information to users It serve as the vehicle through which owners keep track of their firms’ financial situation (Palepu and Healy, 2007) Users are interested in financial information because it provides useful information for making decisions They make decisions like whether and how to allocate their resources to an entity, and how to protect or enhance their investments When they make those decisions, they are interested if the entity is able to generate net cash flows and if management is able to protect and enhance these investments Like I stated before, financial reporting should provide information about the economic resources of the entity and the claims to those resources Financial reporting also should provide information about the effects of transactions and circumstances that change an entity’s economic resources and the claims to those resources (FASB, 2008) That information is useful for users to assess an entity’s ability to generate net cash inflows and the ability of management to protect their investments I will now explain why this information is useful for users Information about an entity’s economic resources and the claims to them, its financial position, can provide a user of the entity’s financial reports with a good deal of insight into the amount, timing, and uncertainty of its future cash flows (FASB, 2008) With that information it is easier to identify the financial strengths and weaknesses of the entity and to assess its liquidity and solvency It also indicates the cash flow potentials of economic resources and the cash needed to satisfy most claims of creditors Users also can compare their expectations with actual results to asses the effectiveness with which management has discharges it responsibilities to capital providers of the entity Information about effects of transactions and other events and circumstances that change an entity’s economic resources and the claims to them helps a capital provider of the entity’s financial reports to assess the amount, timing, and uncertainty of its future cash flows (FASB, 2008) Such information is also used to asses the effectiveness with which management has discharges it responsibilities to capital providers of the entity Financial performance provides information about the return it has produced on its economic resources To generate a positive net cash flow and to provide a return to the capital providers, an entity must produce a positive return on its economic resources Past financial performance information is also helpful to users in predicting the entity’s future return on its resources Accrual accounting depicts the financial effects of transactions and other events and circumstances that have cash or other consequences for an entity’s resources and the claims to them in the periods in which those transactions, events, or circumstances occur (FASB, 2008) A lot of operations that affect its economic resources and the claims to them during a period, often not coincide with the cash receipts and payments of the period Information about these economic resources and claims to them generally provides a better understanding for assessing past performance and future prospect This provides information whether the entity has increased its available economic resources through its operations It also may indicate the extent to which events, such as changes in interest rates, have increased or decreased the entity’s economic resources and the claims to those resources Important economic resources would be excluded from financial statements without accrual accounting Cash flow information during a period also helps users to assess the entity’s ability to generate future net cash flows Information about an entity’s cash flows during a period indicates how it obtains and spends cash, including information about its borrowing and repayment of borrowing, cash dividends or other distributions to equity owners, and other factors that may affect the entity’s liquidity or solvency (FASB, 2008) Financial statements also provides information about changes in economic resources that not results from its financial performance, for example financing transactions between the entity and its owners This information is useful for users to see changes in economic resources that are not a result of financial performance These changes helps users to assess which changes in economic resources are attributable to management’s ability to protect and enhance the economic resources, and therefore form expectations about the future performance Other information that is useful for capital providers are the management’s explanations This information is needed to understand the information provided Management’s explanations of the information in financial reports enhance the ability of users to assess the entity’s performance and form expectations about the entity (FASB, 2008) Management knows more about the entity than external users and by identifying and explaining particular transactions and other circumstances that affected the entity, the usefulness of financial information is increased Financial reporting is often affected by management’s estimates and judgments It is easier for 10 Research method The model I will use to investigate the value relevance of earnings and book values is the Ohlson (1995) valuation model This model expresses price as a linear function of both earnings and book value of equity Even though criticism above on the Ohlson model, I think the use of this valuation model in this research is justified It is a frequently used model in prior research The basic construct of the Ohlson’s theoretical model has been used extensively in the value-relevance literature (Barth et al 1998; Collins et al 1997; Collins et al 1999; Easton, 1985) It is obvious that this is not the right reason to use this model; however this reason must be seen in the context of the second reason The Ohlson model is based on simplifying assumptions but all other models share the same limitation (Barth et al, 2001) Like Brown et al (1999) I also controlled the model for scale factors by deflating the regressors, so the variables are corrected for the scale effects Regressions will be made and the adjusted R-square is used to measure value relevance The Ohlson model relies on three key assumptions (Duran et al., 2007): The first assumption is the Present Value Relation (PVR) of the dividend discount model This assumption states that the market value of a firm’s equity ( Pt ) equals the present value of its expected future dividends payments ( Et ( d t )) The dividends are discounted at the risk-free rate ( R f ), which is assumed to be constant Applying the ( R f ) to discount the dividends reflects the assumption that investors are risk-neutral The second assumption is the Clean Surplus Relation (CSR) It requires that changes in book value from period to period are equal to earnings minus net dividends CSR implies that all value relevant information pass through the income statement Clean surplus accounting supposes that book value of equity only changes with earnings or dividends This can be written as follows: BVt = BVt −1 + Et − d t Where BVt is the book value of equity at time t, E t equals earnings for period t, and d t are the net dividends distributed to shareholders at time t 30 The third assumption of the Ohlson Model is the Linear Information Dynamics relation (LIDOM) It approximates the time series behavior of abnormal earnings as linear and stationary Under this assumption, abnormal earnings are the difference between accounting earnings ( Et ) and normal earnings Normal earnings represent a firm’s normal return on the capital invested at the beginning of the period, that is the net book value of equity multiplied by the interest rate ( R f * BVt −1 ) Ohlson’s (1995) book value-abnormal earnings can be re-expressed as a function of current earnings and lagged book value The preliminaries of the Ohlson model are based on the Clean Surplus relation: Pt = BVt −1 + Et − d t The definition of abnormal earnings is: Exta = Et − ( R f − 1) BVt −1 Where R f in one plus the risk-free rate The stochastic process assumption for abnormal earnings is: Eta−1 = ωEta + ε t +1 Ohlson’s (1995) initial book value-abnormal earnings valuation model is: ∞ Pt = BVt + ∑ R −f T ( Eta+T ) T =1 Where Pt is the firm’s stock price at time t Combining the assumption underlying the Present Value Relation (PVR) of the dividend discount model with formula and 2, Ohlson’s formula yields: Pt = BV1 + α Eta + α ε t 31 Ohlson also shows that price can be expressed as a function of current period earnings, book value at time t, and other information This can be made by substituting the definition of abnormal earnings ( Et ) given above into his last formula In this form, the new formula shows how a firm’s share price is a function of both earnings and book value of equity The value of a firm’s equity is then expressed as the following function: Pit = x0 + x1 Eit + x BVit + ε it (1) Where: Pit = the price of a share of firm i three months after fiscal year-end t; Eit = the earnings per share of firm i during the year t; BVit = the book value per share of firm i at the end of year t; ε it = error term for firm i in year t The value relevance of accounting information is measured as the adjusted R² of equation (1) This total explanatory power from equation (1) can be decomposed into three parts to compare the explanatory power that earnings and book value have for prices: The incremental explanatory power of earnings, the incremental explanatory power of book value, and the incremental explanatory power common to both earnings and book value This decomposition is used in Easton (1985) and in Collins et al (1997) To obtain the incremental value relevance two additional equations are required: Pit = β + β Eit + ε it (2) and Pit = γ + γ BVit + ε it (3) 32 The coefficients of determination from equations (1)-(3) are denoted R 21 , R 2 , and R respectively (1) The incremental explanatory power of book value: The total explanatory power of book value and earnings less the explanatory power of earnings alone R BV = R t - R 2 (2) The incremental explanatory power of earnings: The total explanatory of book value and earnings less the explanatory power of earnings alone R E = R 2t - R (3) The explanatory power common to both earnings and book value: The total explanatory power of book value and earnings less the incremental power of earnings and the incremental explanatory power of book value R C = R t - R E - R BV I use this R² decomposition to investigate whether the value relevance of accounting information has changed over time To test this, the obtained R² statistics will be regressed on a time-trend variable as follows: R t = φ0 + φ1TIMEt + ε t (4) Where: TIMEt = 1, …, 10, corresponding to the years 1998-2007; R t = R 21 , R BV , R E , or R C Significantly negative (positive) estimates of φ1 are consistent with a decrease (increase) in explanatory power over time 33 Sample selection The accounting data is collected for the period 1998-2007 The data is collected from the Datastream database I used 10 companies from the Netherlands, so the final sample is 100 firm-year observations Information used is the share price, number of outstanding shares, book value of equity, and net income I have taken the share price (item P) months after the fiscal year, because all the relevant information should be reflected in the share price The number of outstanding shares is item NOSH in Datastream The book value of equity is WC03501, net income is WC01751 34 Empirical results Table present descriptive statistics for the dependent variable P, as well as for the independent variables, earnings per share E and book value of equity per share BV These descriptive statistics are comparable with those from the study of Collins et al (1997) The book value for example is 12,661, compared to 12.653 in the Collins’ study Firms have on average a positive net income, but a part of the sample show a loss There were 14 cases of losses reported in our sample All the book values reported are positive, as well for the share price Table 1: Descriptive Statistics for firm year observations for the years 1998-2007 a Variables P E BV GROWTH a N Mean 24,529 1,559 12,661 3,896 100 100 100 100 Std Deviation 14,242 3,052 14,105 3,273 Minimum 2,575 -14,3 ,530 ,280 Median Maximum 22,977 68,010 1,127 11,918 6,527 58,719 2,905 19,350 P is the price of a share of firm i three months after fiscal year-end t E is the earnings per share of firm i during the year t BV is the book value of equity per share of firm i at the end of year t GROWTH is the market-to-book value of equity of firm i for year t a Table : Correlations among independent and independent variables Variables P E BV b P ,521** ,555** E BV ,498 a The number of firm-year observations is 100 Pearson correlations are in the bottom-left b P is the price of a share of firm i three months after fiscal year-end t E is the earnings per share of firm i during the year t BV is the book value of equity per share of firm i at the end of year t ** Correlation is significant at the 0.01 level (2-tailed) Table presents the Pearson coefficients of correlation between all the variables Earnings and book value are both significantly positively correlated with share price Only, book value is more strongly correlated with share price, than earnings 35 Value relevance of earnings and book value of equity over time Table presents the cross-sectional regressions of equations (1)-(3) for the period 1998-2007 The coefficients and t-statistics for all years combined, accompanied by decomposition of adjusted R²s, are presented in table These results show earnings and book value are strongly significant in explaining firm value for all years combined It also reveals that book value adds more to overall explanatory power of the model than does earnings in the period 1998-2007, based on the adjusted R² decomposition results The incremental explanatory power of book value, R BV , is 11.1% and the incremental explanatory power of earnings, R E , is only 7.5% The common explanatory power of earnings and lagged book value, R C , is 19% Table 3: Pooled regressions model (1), (2), and (3) Years N Constant E BV Adj R² 1998-2007 100 17.1357** 1.522** 0.397** 0.376 (11.2896) (3.563) (4.289) 20.734** 2.435** (15.106) (6.056) 1998-2007 1998-2007 100 100 17.432** 0.561** (10.872) (6.608) R² decomposition: R BV : R 21 - R E = 0.376-0.265 = 0.111 R E : R 21 - R BV = 0.376-0.301 = 0.075 R C = R 21 - R BV - R E = 0.376-0.111-0.075 = 0.19 Notes: Models: 0.265 Pit = x0 + x1 Eit + x BVit + ε it (1) Pit = β + β1 Eit + ε it (2) Pit = γ + γ BVit + ε it (3) 36 0.301 Where: Pit = the price of a share of firm i three months after fiscal year-end t; Eit = the earnings per share of firm i during the year t; BVit = the book value per share of firm i at the end of year t; T-statistics are in parentheses ** Significant at the 0.01 level (2-tailed) These findings of the value relevance of earnings and book value are not good enough because these regressions are pooled over time Annual regressions will give a better view of the value relevance Another reason are the scale effects which mentioned earlier from Brown et al (1999) To control for scale effects, all the variables in the models have to be divided by the share price of last year The models further in this thesis are based on the Ohlson model with each variable divided by last year’s share price Table provides annual regressions of the models and figure show a graphical presentation of the common and incremental explanatory power of earnings and book values across time These are the results from the annual regressions made in table Table 4: Yearly regressions model (1), (2), and (3) Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Notes: Models: N 10 10 10 10 10 10 10 10 10 10 (A) R² -0.28 -0.24 0.89 -0.21 -0.18 0.60 0.23 0.70 0.40 0.09 (B) R² -0.12 -0.12 0.82 -0.12 -0.038 -0.094 -0.106 0.64 0.43 0.03 Pit = x0 + x1 Eit + x BVit + ε it (1) Pit = β + β1 Eit + ε it (2) Pit = γ + γ BVit + ε it (3) 37 (C) R² -0.12 -0.11 0.07 -0.10 -0.12 0.52 0.07 0.73 0.14 0.19 (A)-(C) Incr EARN -0.15 -0.13 0.82 -0.11 -0.052 0.081 0.16 -0.025 0.27 -0.097 (A)-(B) Incr BV -0.15 -0.12 0.062 -0.09 -0.14 0.69 0.34 0.063 -0.026 0.061 Where: Pit = the price of a share of firm i three months after fiscal year-end t; Eit = the earnings per share of firm i during the year t; BVit = the book value per share of firm i at the end of year t; Figure 1: Patterns over time of R²1, R²BV, and R²E 0.8 0.6 0.4 R²E R²BV R²1 0.2 10 -0.2 -0.4 The pattern of the total explanatory power confirms the prediction that there is no decline in the value relevance of accounting information for the Dutch firms The line moves between the values -0.28 and 0.90 The incremental explanatory power of book value of equity shows no evident trend The line moves around the value of 0, with two peaks, one to 0.69 and one to 0.34 There is no upward or downward trend visible The pattern of R²E also doesn’t show an evident trend First the line moves upward for two years, then one year downwards, two years up and down and up again No real downward or upward trend is visible 38 To provide more evidence about the value relevance over time, the statistics from figure are regressed on a time-trend variable The results are in table These results confirm the patterns from figure In figure there was no up- or downward trend visible with the total explanatory power of book value and earnings In table this is confirmed: the total explanatory power of book value and earnings has not increased significantly over time (t = 1.17) The incremental explanatory power of book values is positive, but the t-statistic (0.991) is too low to make it significant This indicates that the value relevance of book values not change over time The incremental explanatory power of earnings is constant over time, but not significant with a t-statistic of 0.002 This leads to the conclusion that the value relevance of earnings is not changing over time, confirming the patterns of figure These findings lead to the conclusion that for Dutch firms over the period 1998-2007, the incremental explanatory power of earnings and the incremental explanatory power of book values is not significantly changing over time The total explanatory power of earnings and book values is also not significantly changing over time Table 5: Regressions of yearly R² statistics on a time-trend variable Variables R²1 N 10 R²BV 10 R²E 10 R²C 10 Notes: Model: Constant -0.100 (-0.348) -0.09 (-0.499) 0.075 (0.35) -0.085 (-0.501) TIME 0.054 (1.17) 0.029 (0.991) 0.00 (0.002) 0.025 (0.939) R t = φ + φ1TIME t + ε t Where: TIMEt = 1, …, 10, corresponding to the years 1998-2007; R t = R 21 , R BV , R E , or R C T-statistics are in parentheses ** Significant at the 0.01 level (2-tailed) * Significant at the 0.05 level (2-tailed) 39 Adj R² 0.041 -0.002 -0.125 -0.013 Summary and Conclusions This thesis investigates the value relevance of earnings and book value of equity over the sample period 1998 -2007 in the Netherlands The research is motivated by other research on the value-relevance of earnings and book values and related claims from the professional community There appears to be a widespread impression that historical cost financial statements have lost their value-relevance because of wholesale changes in the economy Prior research on the value relevance of accounting information over time is very inconsistent For example, Francis and Schipper (1999) found that, consistent with Collins et al (1997), earnings declined in value relevance over the sample period, while both the balance sheet and combined earnings and book values over time approaches slightly increased On the other hand, Lev and Zarowin (1999) and Dontoh et al (2004), documented that the combined impact of earnings and book value decreased over time The central question in this thesis is if the value relevance of accounting information has declined over time I tested the value relevance of earnings and book values by using the Ohlson (1995) model Regressions were made and the adjusted R-square was used to measure value relevance The sample consisted of 100 firm-year observations over the period 1998-2007 and these were Dutch firms This thesis provided evidence that the value relevance of accounting information is not significantly changing over the period 1998-2007 The value relevance of earnings and book value of equity, individually or together, is not changing over the sample period There are some limitations in this research The first limitation is the relatively small sample size of 100 firm-year observations The best option is always a research with the greatest sample possible An extension for future research is to use more companies from the Netherlands A second limitation is the model used in this thesis This research only uses the Ohlson model, which is a price model Regressions with a return model might add some more evidence This basic model that I used is also different than reality, but this model is often used in other researchers A third limitation is that it is questionable that the findings can be generalized, because the sample consists of only Dutch firms 40 Another option for future research is to compare the Dutch market to other countries and see if there are differences in the value relevance An extension over the sample period is also an option to have better comparability with prior studies about the value relevance of accounting information Most of the prior research started a lot earlier than 1997 Expanding the sample with other countries and expanding the sample size would make the results more reliable 41 References Amir, E and Lev, B (1996) Value relevance of nonfinancial information: The wireless communications industry Journal of Accounting and Economics 22: 3-30 Barth, M., Beaver, W., Landsman, W., (1996) Valuation Characteristics of Equity Book Value and Net Income: Tests of the Abandonment Option Hypothesis Working paper, Stanford University Barth, M.E., and Kallapur, S (1996) The effects of Cross-sectional Scale Differences on Regression Results in Empirical Accounting Research Contemporary Accounting Review 13: 527-567 Barth, M.E., Beaver, W.H and Landsman, W.R (1998) Relative valuation roles of equity book value and net income as a function of financial health Journal of Accounting and Economics 25: 1-34 Barth, M.E., Beaver, W.H and Landsman, W.R (2001) The relevance of the value relevance literature for financial accounting standard setting: another view Journal of Accounting and Economics 31: 77-104 Bauman, M.P (1996) “A Review of Fundamental Analysis research in Accounting” Journal of Accounting Literature 15: 1-33 Beaver, W H (1997), Financial Reporting: An Accounting Revolution, Prentice Hall Berger, P., Ofek, E., and Swary, S (1996) Investor Valuation of the Abandonment Option Journal of Financial Economics, 42: 257-287 Brown, S., Lo, K., and Lys, T (1999) Use of R² in accounting research: measuring changes in value relevance over the last four decades Journal of Accounting and Economics 28: 83-115 42 Burgstahler, D., Dichev, 1., 1997 Earnings, adaptation, and equity value The Accounting Review 72: 187-215 Collins, D.W., Maydew, E.L and Weiss, I.S (1997) Changes in the value-relevance of earnings and book values over the past forty years Journal of Accounting and Economics 24: 39-67 Collins, D.W., Pincus, M., and Xie, H (1999) Equity valuation and negative earnings: The role of book value of equity The Accounting Review 74(1): 29-61 Dontoh, A., Radhakrishnan, S and Ronen, J (2004) The declining value-relevance of accounting information and non-information-based trading: An empirical analysis Contemporary Accounting Research, Vol 21(4): 795-812 Durán, V.R., Lorenzo, V.A., and Valencia, H.H (2007) “Value relevance of the Ohlson model with Mexican Data” Red de Revistas Científicas de América Latina y el Caribe, España y Portugal 223: 33-52 Easton, P.D (1985) Accounting earnings and security valuation: Empirical evidence of the fundamental links Journal of Accounting Research 23: 54-77 Elliott, R., Jacobson, P., (1991) U.S accounting: a national emergency Journal of Accountancy 172: 54-58 FASB (2008) “Financial Accounting Standards Board (FASB)” Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information http://www.fasb.org/draft/ed_conceptual_framework_for_fin_reporting.pdf Francis J and Schipper, K (1999) Have financial statements lost their relevance? Journal of Accounting Research 37 (2): 319-352 43 Gornik-Tomaszewski, S and Jermakowicz, E.K (2001) Accounting-based valuation of Polish listed companies Journal of International Financial Management and Accounting 12(1): 50-74 Holthausen, R.W and Watts, R.L (2001) The relevance of the value-relevance literature for financial accounting standard setting Journal of Accounting and Economics 31: 3-75 Jenkins, E., (1994) An information highway in need of capital improvements Journal of Accountancy 177, May, 77-82 Kothari, S P (2001) Capital markets research in accounting Journal of Accounting and Economics 31(1-3): 105-231 Lev, B and S R Thiagarajan (1993) Fundamental information analysis Journal of Accounting Research 31: 190–215 Lev, B and Zarowin, P (1999) The boundaries of financial reporting and how to extend them Journal of Accounting Research 37 (2): 353-385 Ohlson, J.A (1995) Earnings, book values, and dividends in security valuation Contemporary Accounting Research 11: 661-687 Palepu, K.G., and Healy, P.M Business Analysis and Valuation: Using Financial Statements 4th ed Mason, Ohio: Thomson Southwestern, 2007 Rimerman, T., 1990 The Changing Significance of Financial Statements Journal of Accountancy: 79-83 44