DIFFERENTIAL CHANGES IN THE VALUE-RELEVANCE OF EARNINGS AND BOOK VALUES OVER TIME: FINANCIAL VERSUS OTHER INDUSTRIES

Sharad Asthana and Lucy Chen
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Sharad Asthana: The University of Texas at San Antonio
Lucy Chen: Arizona State University

No 26, Working Papers from College of Business, University of Texas at San Antonio

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. Using Ohlson’s model, we find increasing value-relevance for earnings and book value for the 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. Financial institutions typically hold more 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. 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 industry. (search for similar items in EconPapers)
JEL-codes: G10 G21 G38 M41 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-11-28
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Citations: View citations in EconPapers (1)

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