Earnings sustainability, economic conditions and the value relevance of accounting information

Leif Atle Beisland and Mattias Hamberg

Scandinavian Journal of Management, 2013, vol. 29, issue 3, 314-324

Abstract: This study demonstrates that the value relevance of accounting information is influenced by the ability to capitalize investments in valuable resources. We use data from Sweden to show that firms that operate in industries in which accounting conservatism limits this capitalization display lower value relevance as a result of more unsustainable earnings components. However, when controlling for the different properties of sustainable and unsustainable earnings components, the difference vanishes. Moreover, we show that firms operating in industries in which more investments are immediately expensed display systematic temporal variations in the level of value relevance. We contend that economic conditions in the form of investment levels and growth expectations explain this variation. Thus, value relevance can be substantially affected by the prevailing economic context.

Keywords: Value relevance; Reported earnings; Sustainable earnings; Financial statement information; Intangible assets; Investment level; Growth expectations (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:scaman:v:29:y:2013:i:3:p:314-324

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DOI: 10.1016/j.scaman.2013.02.001

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