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Earnings in firm valuation and their value relevance


Clout, VJ and Willett, RJ, Earnings in firm valuation and their value relevance, Journal of Contemporary Accounting and Economics, 12, (3) pp. 223-240. ISSN 1815-5669 (2016) [Refereed Article]

Copyright Statement

2016 Elsevier Ltd. All rights reserved.

DOI: doi:10.1016/j.jcae.2016.09.005


This paper examines the explanatory power of earnings in equity valuation and value relevance of earnings through a combination of cross-section and time series regression analysis. Cross-section models are based on all US firms with a 31 December year-end in the Compustat files between 1963 and 2009. Time series models are based on a sample of 30 long-lived firms with 55 years of continuous data from 1955 through to 2009. The crosssection models show a decreasing magnitude in the elasticity of market value with respect to earnings over time relative to book value, suggesting a decline in value relevance of earnings. This finding is explained by an increasing incidence of reported losses. We find no direct evidence that the increased incidence of losses is due to poor earning quality or earnings management.

Item Details

Item Type:Refereed Article
Research Division:Commerce, Management, Tourism and Services
Research Group:Accounting, auditing and accountability
Research Field:Accounting, auditing and accountability not elsewhere classified
Objective Division:Expanding Knowledge
Objective Group:Expanding knowledge
Objective Field:Expanding knowledge in economics
UTAS Author:Willett, RJ (Professor Roger Willett)
ID Code:111630
Year Published:2016
Web of Science® Times Cited:2
Deposited By:TSBE
Deposited On:2016-09-27
Last Modified:2018-03-07

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