The relevance of the value-relevance literature for financial accounting standard setting

“Recently, doubts over the validity of value relevance studies (Holthausen and Watts, 2001) have been rebutted by Hellstro¨m (2006).”

“…of the differences that exist with respect to the contingent claims of bondholders versus shareholders, inferences drawn from research regarding analysts' cash flow forecasts in equitymarkets are not necessarily valid in debtmarketswithout empirical substantiation (Holthausen & Watts, 2001).”

“In one of HW paper, the state that the role of accounting is to provide information that investors use as an input to valuations models in valuing firms' equity (Holthausen and Watts, 2001).”

“For example, Jiang (2008) shows that credit rating agencies upgrade their ratings for firms reporting better earrings performance (i.e. meeting/beating their predetermined earnings benchmarks). Similarly, Wu and Zhang (2014) show that firms credit rating are associated with accounting default factors for firms that ei…”

“Finally, we conduct a host of additional tests, including using alternative union strength measures, such as labor strike and defined benefit plans, and alternative measurement horizons, and controlling for CEO ownership, unconditional conservatism, and spurious regression bias due to the increasing time trend in cond…”

“Starting in the early nineties, most researchers focused primarily on the value-relevance of fair value (Barth, 1994; Barth et al., 1995, 2001; Eccher et al., 1996; Holthausen and Watts, 2001).”

“Conservatism, discretion, or unbiased estimation error might reduce the reliability of deferred taxes (Barth et al., 2001).”

“The advantage of this score is that, in contrast to many other self-constructed indices (Holthausen and Watts, 2001), it relies on a comprehensive theoretical framework directly related to the investors ’ valuation problem.”

“This is due to the monitoring role of accounting conservatism in general and to the potentially positive correlation between the two types of conservatisms (Holthausen & Watts, 2001).”

“The relationship can be negative since intangible assets have less collateral value, uncertain liquidation value, and higher information asymmetry, and can eventually decrease the borrowing capacity of companies (e.g. Holthausen and Watts, 2001; Shleifer and Vishny, 1992; Williamson, 1988).”

“Also, Holthausen and Watts (2001) saw value relevance as the empirical relation between stock market values (or changes in values) and particular accounting numbers for the purpose of assessing the numbers used or proposed to use in Tochukwu Gloria Okafor, Ph.D., Accountancy Department, Nnamdi…”

“…example, the users may have a high need for the accounting conservatism of financial reports when the firms have more serious information asymmetry or agency problems (LaFond & Roychowdhury, 2008; LaFond & Watts, 2008) or high litigation risk (Holthausen & Watts, 2001; LaFond & Roychowdhury, 2008).”

“This paper focuses on whether firm’s market value is negatively related to the disclosure of IIC over a long period time using incremental association studies (Holthausena and Watts 2001).”

“An alternate view is that changes in financial reporting do affect lenders’ performance assessments via financial covenants because banks primarily contract on ‘‘floating’’ Generally Accepted Accounting Principles (GAAP) (for example, Holthausen and Watts 2001; Watts 2003; Ball et al. 2008).”

“…of political connections on recommendations than the main analysis because I am able to examine a significant change in connections at the firm level which potentially mitigates problems concerning correlated omitted variables and heteroskedasticity (Brown et al., 1999; Holthausen and Watts, 2001).”

“Ramanna (2008) studies the evolution of SFAS 142, which uses unverifiable fair-value estimates to account for acquired goodwill, in order to test what is argued in previous research (Holthausen & Watts, 2001; Watts, 2003; Roychowdhury & Watts, 2007).”

“The supporters of the ‘contracting efficiency view’ suggest that the primary purpose of financial reporting is to improve contract efficiency and monitoring (Holthausen and Watts 2001).”

“8 Hui et al. (2012) measure size using firms’ market value of equity. Following Rice and Strahan (2010), we measure size using total assets because (1) not all banks are public and (2) banks often have small equity and rely on liabilities (e.”

“…FVA arises from value relevance studies, despite concerns of their merit as a basis for financial accounting standard-setting (Barth et al., 2001; Holthausen & Watts, 2001).8 Pre-SFAS 157 studies on FV value relevance focus on all FV assets and liabilities, and generally report that market…”

“We select value relevance as it is closely related to our rational expectations capital market model.19 Value relevance is used in many studies, but is a controversial measure for earnings quality (see, e.g., Holthausen and Watts 2001).”

“Indeed, some have argued that accounting researchers have been too willing to assume that regulation has value (see, for example, Barton and Waymire, 2004; Christensen and Demski, 2007; Holthausen and Watts, 2001; Waymire and Basu, 2007).”

“Yet, despite being assumed that balance sheet data are cross-section unbiased estimates of the value of the firm, it is well documented that book value -even under fair value accounting- underestimates firm’s value (Holthausen and Watts, 2001; Matis and Bonaci, 2008).”

“Basu [48] and Holthausen and Watts [53] suggested that conservative financial reporting is to generate an understatement of net assets by requiring a higher degree of verification for gains than for losses.”

“Moreover, as discussed in Ball (2001), Barth, Beaver, and Landsman (2001), Holthausen and Watts (2001) and Ball, Robin, and Sadka (2008), these are distinctly different and important phenomena.4 We link these two lines of research and demonstrate that segment reporting affects timely loss…”

“A vast literature documents the relationship between financial statement information and market valuation, both in general (Barth et al., 2001; Kothari, 2001; Beisland, 2009), and in more industry-specific studies, in the oil and gas (Harris & Ohlson, 1987; Quirin, Berry, & O’Brien, 2000; Osmundsen…”

“Nevertheless, standard setters are ultimately responsible for weighing the complex social welfare trade-o¤s associated with standard setting (Holthausen and Watts, 2001; Barth et al., 2012); our results merely provide additional evidence that is potentially relevant for the process.”

“…provide evidence that its level can be linked to country-specific factors like contracting, litigation, taxation and regulation (Ball et al., 2000; Basu, 1997; García Lara and Mora, 2004; Holthausen and Watts, 2001; Raonic et al., 2004), as well as firm-specific attributes (Grambovas et al., 2006).”

“Furthermore, they emphasise that various studies have so far been carried out on examining the relationship between stock market value and accounting values (Balachandran & Mohanram, 2011, Barth et al., 2021, Core et al., 2003, Holthausen & Watts, 2001, Song et al., 2010, Yu, 2013).”

“As we find consistent results with value relevance models, our evidence on corporate social media consumption also contributes to strengthening results based on stock prices as a way to investigate value relevance (Barth et al. 2001, Holthausen and Watts 2001).”

“Otherwise, goodwill impairment will harm enterprises (Holthausen and Watts 2001) or increase the opportunistic motivation of the management (Ramanna 2008).”

“In fact, where creditors and lenders are the primary users of financial reporting, the users of financial information are more interested in evaluating the solvability and default probability (Holthausen and Watts, 2001).”

“Accounting conservatism lets financial statements reflect potential losses but not potential gains (Holthausen & Watts, 2001).”

“According to Watt’s view [1], conservatism has been considered as an outstanding and dominant feature in accounting and financial reporting (statements) forum since early twentieth century.”