Title: Properties of accounting earnings associated with legal regime and the relative value-relevance of earnings, dividends and cash flows: evidence from American depositary receipts

Authors: Tony Kang

Addresses: School of Accountancy, Singapore Management University; Visiting Professor, Faculty of Management, McGill University, 1001 Sherbrooke Street, W. Montreal, QC, H3A 1G5, Canada

Abstract: Prior literature finds that the properties of accounting information are associated with the legal regime of a firm|s country of domicile. Extending this line of research, this study investigates whether investors rely more on other valuation parameters (e.g., dividends and cash flows) when the quality of earnings is perceived to be low. Our evidence suggests that accounting earnings (dividends and cash flows) are relatively less (more) value-relevant for code (common) law country firms whose earnings are considered to be of lower (higher) quality. Overall, our results are consistent with the view that dividends and cash flows serve as substitutes for earnings for valuation purposes and that US investors| choice of valuation model largely depends on the quality of earnings.

Keywords: value-relevance; accounting earnings; legal regime; American depository receipts; dividends; cash flows; accounting information; valuation models.

DOI: 10.1504/IJAAPE.2005.006896

International Journal of Accounting, Auditing and Performance Evaluation, 2005 Vol.2 No.1/2, pp.140 - 152

Published online: 20 Apr 2005 *

Full-text access for editors Access for subscribers Purchase this article Comment on this article