Value Relevance of Accounting Information - A Swedish Perspective

University essay from Göteborgs universitet/Företagsekonomiska institutionen

Author: Elin Svensson; Andreas Larsson; [2009-08-18]

Keywords: ;

Abstract: Background and problem: The research field of value relevance examines the relationshipbetween stock prices and accounting information. It is comprehensive and constitutes a largebody of literature. However, value relevance studies from different countries often showcontradictory results, partly because accounting regulations differ between countries. Earlierresearch on the value relevance of accounting information in Sweden has been conducted andsuggests that accounting information is value relevant in Sweden. However, the developmentin the field of accounting is rapid and there is a need for new research using fresh data.Purpose: The study examines the value relevance of earnings in Sweden. The purpose is tofind out whether there has been a change in the value relevance of accounting informationsince the study by Marton (1998), which included data until 1995.Delimitations: While the purpose of the study is to find out whether there has been a changein the value relevance of earnings, the study does not attempt to explain why such a changemight have occurred. Neither does it attempt to explain stock prices in whole; only theexplanation power of earnings is accounted for in this paper.Empirical method: Earnings and market values from 30 companies and over ten years(1999-2008) were collected and put into a regression model. The model specifies that marketreturn, that is the change in market value during a year, depends on the level of earnings andthe change in earnings from the previous year. The data was analyzed in SPSS using a linearmultivariate regression analysis.Results and conclusions: The regression analysis generated an adjusted R2 of 9.3 per cent,suggesting that earnings are value relevant in Sweden. This is in line with several US studiesthat have found R2’s in the range between five and ten per cent. In comparison with the resultsof the Marton (1998) study, one can conclude that the value relevance of earnings in Swedenhas stayed much the same over the years. However, no dot-com companies were included inthis study, which, if they had been, might have generated quite different results. With thesefindings at hand, we feel that the purpose of this thesis has been achieved.Suggestions for further research: This study found that earnings are value relevant inSweden, for further research it would be interesting to find out the value relevance of otheraccounting figures, such as owner’s equity, cash flow, and earnings components. It would alsobe interesting to see more comparative studies between the value relevance of accountinginformation in Sweden and the value relevance in another country.

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