Have accounting measures lost their usefulness after the 2008 global financial crisis?

Hesham I. Almujamed and Mishari M. Alfraih

Journal of Financial Reporting and Accounting, 2019, vol. 17, issue 4, 589-603

Abstract: Purpose - This purpose of this paper is to investigate the value relevance and incremental importance of earnings and book value in the Kuwaiti market to equity holders over time and in the context of the decade after the 2008 global financial crisis. Design/methodology/approach - Following reports in the literature, the value relevance of earnings and book values was examined using the price valuation model provided by Ohlson (1995). Observations (2,817) were collected from all firms listed on the Kuwait Stock Exchange from 1994 to 2016. Findings - The results suggest that the value relevance of earnings and book values declined over this period, and that the loss of value relevance for earnings data was greater than that for book value. The analysis provides evidence that the decline in value relevance of earnings and book value was driven by book values in the post-GFC period and suggests an exchange of value relevance between earning and book value post GFC. Practical implications - The results are useful for regulators, analysts, investors and academics as an assessment of effectiveness of current financial reporting. There is a need for improvement because quality information helps equity holders determine value precisely. Timely financial reporting may mitigate the drop in value relevance of financial statements. Originality/value - This is the first study to examine value relevance accounting measures of Kuwaiti companies, in the post-GFC context. It contributes to capital market research through an empirical examination of a frontier capital market.

Keywords: Declining value relevance; Financial statements; Ohlson’s model; Global financial crisis; Capital markets; Kuwait (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrapp:jfra-05-2018-0035

DOI: 10.1108/JFRA-05-2018-0035

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