Int. J. of Accounting and Finance   »   2012 Vol.3, No.3



Title: Differential changes in the value-relevance of earnings and book values over time: financial versus other industries


Authors: Sharad Asthana; Lucy Huajing Chen


Department of Accounting, College of Business, University of Texas at San Antonio, San Antonio, TX, 78249, USA.
Department of Accountancy and Information Systems, Villanova University, Villanova, PA, 19085, USA


Abstract: We investigate the change in the value-relevance of earnings and book value information in the financial industry compared to other industries from 1970 to 2005. Prior literature provides mixed evidence as to whether value-relevance reduces over time. Our sample consists of 34,252 firm-year observations in the financial industry and 160,206 observations in other industries. This paper utilises both univariate and multivariate analysis [Ohlson's (1995) model] to test the hypotheses. We find increasing value-relevance for earnings and book value for both financial and other industries. However, the increasing trend is less evident for financial firms. More importantly, we document that the slower growth trend for the financial industry improves compared to other industries after firms adopt SFAS 133 (as amended by SFAS 137 and 138) in 2001, since financial institutions typically hold more SFAS-133-related derivative instruments and hedging portfolios than other industries. Our results are thus consistent with the view that SFAS 133 may help financial institutions improve the value-relevance of accounting information. Thus, our results have implication for policy makers when they evaluate the benefit of SFAS 133.


Keywords: value relevance; accounting information; comparative change; SFAS 133; financial industry; non-financial industries; earnings; book values; multivariate analysis; univariate analysis; derivatives; hedging activities; derivative instruments.


DOI: 10.1504/IJAF.2012.048499


Int. J. of Accounting and Finance, 2012 Vol.3, No.3, pp.207 - 222


Submission date: 17 Feb 2012
Date of acceptance: 18 May 2012
Available online: 12 Aug 2012



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