"Value relevance of accounting information : emphasis on the financial crisis in 2008

Abstract

Macroeconomic instability may increase the probability of default and accelerated to financial collapse, which consequently have an impact on value relevance of accounting information. The objective in this study is to enhance the understanding of value relevance in the Norwegian stock market with emphasis on which consequences the financial crisis in 2008 had on value relevance. Given the considerable amount of value relevance research throughout time, it is impossible to adequately summarize the entire field, hence, this study presents a comprehensive review of the major areas in value relevance literature to give the reader an in-depth understanding. Empirical analysis is further applied where a test of general value relevance of accounting information is conducted. Regression analysis determines accounting information’s ability to explain variations in the stock prices using data samples of Norwegian firms listed on the Oslo Stock Exchange Benchmark Index. The study further concerns variations in the explanatory power of accounting information during the crisis period. Empirical analysis presents evidence confirming my prediction that accounting information denoted in earnings and equity book value are value relevant to investors in the Norwegian stock market. Regardless of which model specification applied, the variability in share prices are consistently better explained by equity book value relative to earnings. The overall results from investigating the value relevance of accounting information during the financial crisis in 2008, shows that the total value relevance has increased significantly, attributable to a substantial increase in the explanatory power of book value. This implies that investors valued accounting information higher during the crisis period. As predicted, results report a considerable increase in the explanatory power of book value and a decrease in the explanatory power of earnings. Key words: Value relevance, earnings, equity book value, financial crisis.