The Value Relevance of the Difference Between Nonfinancial and Financial Measures PDF Download
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Author: Megan Cosgrove
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 84
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Book Description
Extant accounting research has focused on the value relevance of nonfinancial performance measures and financial performance measures separately. I examine the value relevance of the difference in those performance metrics. Specifically, I examine whether a difference in nonfinancial and financial information is an indicator of stronger or weaker future firm performance. Additionally, I examine whether the significant difference between nonfinancial and financial measures and future firm performance is related to the life cycle stage of the firm. Finally, I examine whether these differences have an impact on market participants' assessment of firm value. My results suggest that the difference between nonfinancial and financial performance measures is an indicator for future firm performance. Specifically, the higher the difference in performance measure the weaker the future performance of the firm. However, this difference is somewhat mitigated given the various life cycle of the firms. For the mature firms the difference between nonfinancial and financial measures serves as an indicator for future performance, while a firm in the early or growth stage the difference is not a strong indicator of future performance. Additionally, I find that market participants do not impound the difference between nonfinancial and financial measures into their assessment of firm value. This finding supports both proximity and transparency theory as it relates to how these differences are communicated to financial statement users. Given that the difference between nonfinancial and financial provides a signal of future performance suggests that a trading strategy may be implemented to earn future abnormal returns. I develop a trading strategy by taking a long (short) position in firms with a low (high) difference between their nonfinancial and financial performance measures and find significant positive abnormal returns.
Author: Megan Cosgrove
Publisher:
ISBN:
Category : Electronic dissertations
Languages : en
Pages : 84
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Book Description
Extant accounting research has focused on the value relevance of nonfinancial performance measures and financial performance measures separately. I examine the value relevance of the difference in those performance metrics. Specifically, I examine whether a difference in nonfinancial and financial information is an indicator of stronger or weaker future firm performance. Additionally, I examine whether the significant difference between nonfinancial and financial measures and future firm performance is related to the life cycle stage of the firm. Finally, I examine whether these differences have an impact on market participants' assessment of firm value. My results suggest that the difference between nonfinancial and financial performance measures is an indicator for future firm performance. Specifically, the higher the difference in performance measure the weaker the future performance of the firm. However, this difference is somewhat mitigated given the various life cycle of the firms. For the mature firms the difference between nonfinancial and financial measures serves as an indicator for future performance, while a firm in the early or growth stage the difference is not a strong indicator of future performance. Additionally, I find that market participants do not impound the difference between nonfinancial and financial measures into their assessment of firm value. This finding supports both proximity and transparency theory as it relates to how these differences are communicated to financial statement users. Given that the difference between nonfinancial and financial provides a signal of future performance suggests that a trading strategy may be implemented to earn future abnormal returns. I develop a trading strategy by taking a long (short) position in firms with a low (high) difference between their nonfinancial and financial performance measures and find significant positive abnormal returns.
Author: Anne Wyatt
Publisher:
ISBN:
Category :
Languages : en
Pages : 103
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Book Description
This paper evaluates what we have learned about the relevance and reliability of financial and non-financial information on intangibles from the value relevance literature. Because value relevance studies do not easily allow judgements about the reliability of information on intangibles, and this is an issue of central interest, this paper takes a rather wide look across a range of literatures to try to piece together some indirect evidence on both relevance and reliability. The evidence from a package of value relevance and triangulation studies suggests Ramp;D is generally not reliably measured and may be less relevant in some contexts than others as well (e.g., established versus growth firms). Further purchased goodwill and some non-financial measures of brands and customer loyalty do not appear to be reliably measured. While a large number of financial and non-financial information are value relevant, it is difficult to make categorical judgements about most other items as differences in value relevance could be due to different relevance, reliability, or both. Several rich areas for future research include designing direct tests of reliability, focusing on settings where intangibles are changing due to shocks, finding new economic benchmarks to test reliability, and studying the impact of accounting discretion and factors such as strategy and capabilities on value relevance tests of information on intangibles. Two regulatory issues arising from this review paper are the gap in the reporting of separate line items of expenditures on intangibles; and the possibility that giving management discretion, with regulatory guidance, to report intangibles might facilitate more value relevant information on intangibles.
Author: Karl Erik Sveiby
Publisher: Berrett-Koehler Publishers
ISBN: 9781576750148
Category : Business & Economics
Languages : en
Pages : 252
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Book Description
Sveiby offers practical advice on how to manage knowledge companies - such as accounting firms, management consulting firms, advertising agencies and computer consultants - and their employees
Author: Philippe Jorion
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
The value relevance of financial and non-financial information is viewed in light of the theory of life-cycle stages. The study tests the evolving role of common financial statement and web traffic metrics for Internet companies. Previous work has reported that web usage measures are of high value relevance, or offer much greater explanatory power than conventional financial accounting information for market values. We do find that conventional financial data, including gross profit and realized growth rates in sales and in gross profit, are value relevant, but to a lower extent than web traffic data. As the industry matures, however, we would expect these relationships to change.Indeed we find that gross profit and Ramp;D become increasingly value relevant as indicated by time trends. Importantly, there is a clear negative time trend in the eyeball measures. Hence, although still of high importance, the value relevance of non-financial metrics has materially diminished over the 24 months testing period. Accounts for the change in market sentiment during the testing period does not change this finding. The results confirm the view that different value metrics should be used at different stages of the life of an industry. Testing whether the life-cycle theory is anchored more to the maturity of the industry or to that of the individual company, we find the value relevance of non-financial vis-a-vis financial measures to be tied only to the maturity of the sector as a whole.
Author: Seng Thiam Teh
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 582
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Book Description
I examine the value relevance of earnings measures based on generally accepted accounting principles (GAAP) relative to non-GAAP earnings measures using six earnings measures: I/B/E/S earnings; Standard & Poor's Core earnings; cash earnings; cash flows from operations; earnings from operations adjusted to exclude special items; and income before extraordinary items. I adopt the Ohlson (1995; 1999) valuation model to test value relevance and a cumulative abnormal returns model to test the information content of these alternative earnings measures. Prior studies consistently show non-GAAP earnings are significantly more value relevant than GAAP earnings (Bradshaw and Sloan, 2002; Bhattacharya et al., 2003; Brown and Sivakumar, 2003; Albring et al., 2010) and that information risk is priced by investors (Easley and O'Hara, 2004) Therefore, factors that impact on information risk, such as, information asymmetry, earnings quality and conservatism, may affect the value relevance of GAAP and non-GAAP earnings. However, prior studies do not examine the impact of these factors on the relative and incremental value relevance GAAP versus non-GAAP earnings. I separately control and test for the impact of information asymmetry, earnings quality and conservatism on the comparative value relevance of GAAP and non-GAAP earnings. Furthermore, I argue that firm size may impact on the value relevance of GAAP and non-GAAP earnings. In addition, industry may have an effect on the value relevance of earnings, particularly for firms in the financial sector because of their capital structure and regulatory environment. However, prior studies do not investigate the impact of financial and non-financial firms and of size on the value relevance and informativeness of GAAP and non-GAAP earnings. I consider these issues by separately analysing samples of financial, non-financial, S&P 500 and non-S&P 500 firms. Prior studies generally present evidence from before the GFC and there is no published research on the value relevance of these earnings metrics that examine the impact of the GFC. Therefore, I examine the impact of the GFC on the value relevance of GAAP and non-GAAP earnings measures before, during and after the GFC. Additionally, prior research focuses on GAAP earnings and pro forma or I/B/E/S earnings. As mentioned above, I use six earnings measures. My sample is drawn from US publicly traded firms between 2002 and 2012. My results indicate that GAAP earnings are incrementally value relevant and that non-GAAP earnings are not consistently more value relevant than GAAP earnings. I find evidence that information asymmetry, earnings quality and conservatism are systematically related to the comparative value relevance of GAAP and non-GAAP earnings. I also find that sample selection impacts on the findings. In addition, investors shift their emphasis on GAAP and non-GAAP earnings over time as a consequence of the GFC and investors generally place greater emphasis on the book value of equity in pricing shares. My findings highlight the fluid nature of the relative emphasis investors place on alternative earnings measures. They provide insights on the impact of information asymmetry, earnings quality and conservatism, and of the GFC on the emphasis investors place on earnings information.
Author: Lianna Aghabekyan
Publisher:
ISBN:
Category :
Languages : en
Pages : 89
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Book Description
This research is a value-relevance research and constitutes a part of the Market-based Accounting Research (MBAR).It examines the relationship between the market value of Internet-based companies from the NASDAQ QNET index and different financial and non-financial value-drivers.The period examined is from Q1 2009 to Q2 2010. Financial components considered are book value, profit, operating cash flow, R&D and SG&A expenses as well as earnings before interest, taxes, depreciation/amortization (EBIT). The non-financial item used is Alexa rank which is a composite Internet metric based on web traffic, page views and other popular non-financial metrics examined in the previous research. The Ordinary Least Square (OLS) regression analysis is used to examine these relationships. The book value of equity and R&D expense are found to be value-relevant in line with the previous research done in 1999-2002. SG&A expense is not found to be value-relevant in this study. The quality of data sets and transformations for the cash flow, profit and EBIT variables precluded coming to any definite conclusions regarding their value-relevance. The internet metric, Alexa rank, is not found to be value-relevant but the small sample size for this particular test as well as the short time period considered could be the reasons. Originally three hypotheses were proposed however it became possible to expand the models to include two additional hypotheses. This ensured a more extensive value-relevance analysis for different components of financial statements.
Author: Ojo, Marianne
Publisher: IGI Global
ISBN: 1522519017
Category : Business & Economics
Languages : en
Pages : 334
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Book Description
Among banking industries and insurance and security sectors, systemic risk and information uncertainty can generate negative consequences. By developing solutions to address such issues, financial regulation initiatives can be optimized. Value Relevance of Accounting Information in Capital Markets is an essential reference source for the latest scholarly research on the importance of information asymmetries and uncertainties and their effects on the overall regulation of financial industries. Featuring extensive coverage on a wide range of perspectives, such as financial reporting standards, investor confidence, and capital flows, this publication is ideally designed for professionals, accountants, and academics seeking current research on the effects of the underlying elements in investing.
Author: Dumay, John
Publisher: Edward Elgar Publishing
ISBN: 1785365320
Category : Business & Economics
Languages : en
Pages : 416
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Book Description
This essential Research Handbook examines the state-of-the-art methodologies being applied to the expanding field of intellectual capital (IC) research. It offers an overview of the contemporary issues and methods in the field, providing insight and inspiration for emerging and established academics in their own research.
Author: Eli Amir
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The study examines the value-relevance of reported financial information of fast-changing science-based companies and the incremental value-relevance of publicly available nonfinancial information. Based on a sample of independent cellular phone companies we find that on a stand-alone basis financial information (earnings book values and cash flows) appears largely irrelevant for valuation. However when combined with nonfinancial information these variables contribute to the explanation of stock prices and returns. Also the value- relevance of nonfinancial information overwhelms that of traditional financial indicators. Finally regarding investors' timely recognition of the implications of nonfinancial information we find that a key cellular nonfinancial growth measure -- POPS -- is positively associated with subsequent stock returns after controlling for various risk and growth measures. This may indicate either a systematic investor underreaction to nonfinancial information (market inefficiency) or that this nonfinancial measure proxies for risk.
Author: Baruch Lev
Publisher: John Wiley & Sons
ISBN: 1119191084
Category : Business & Economics
Languages : en
Pages : 268
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Book Description
An innovative new valuation framework with truly useful economic indicators The End of Accounting and the Path Forward for Investors and Managers shows how the ubiquitous financial reports have become useless in capital market decisions and lays out an actionable alternative. Based on a comprehensive, large-sample empirical analysis, this book reports financial documents' continuous deterioration in relevance to investors' decisions. An enlightening discussion details the reasons why accounting is losing relevance in today's market, backed by numerous examples with real-world impact. Beyond simply identifying the problem, this report offers a solution—the Value Creation Report—and demonstrates its utility in key industries. New indicators focus on strategy and execution to identify and evaluate a company's true value-creating resources for a more up-to-date approach to critical investment decision-making. While entire industries have come to rely on financial reports for vital information, these documents are flawed and insufficient when it comes to the way investors and lenders work in the current economic climate. This book demonstrates an alternative, giving you a new framework for more informed decision making. Discover a new, comprehensive system of economic indicators Focus on strategic, value-creating resources in company valuation Learn how traditional financial documents are quickly losing their utility Find a path forward with actionable, up-to-date information Major corporate decisions, such as restructuring and M&A, are predicated on financial indicators of profitability and asset/liabilities values. These documents move mountains, so what happens if they're based on faulty indicators that fail to show the true value of the company? The End of Accounting and the Path Forward for Investors and Managers shows you the reality and offers a new blueprint for more accurate valuation.
