Value Relevance in the New Economy: A Study on Changes in Value Relevance of Accounting Information

Abstract: Prior research emphasizes that the failure of accounting practices to keep pace with the emergence of a new economy has caused a deterioration in the value relevance of accounting. We therefore aim to investigate how the value relevance of accounting information in Sweden has changed as the new economy has developed. Thus, we utilize a machine learning model based on Classification and Regression Trees to examine the value relevance of 15 accounting variables and ten industry indicators for Swedish-listed firms between 2000 and 2021. Our findings demonstrate a significant decline in combined value relevance, which is driven by developments between 2011 and 2021. Notably, we also find that individual accounting items related to intangible assets and growth opportunities, which are particularly important in the new economy, have increased in value relevance. By separately analyzing New Economy and Old Economy firms, we also deduce that these trends are economy-wide, yet stronger for New Economy firms. Additionally, we find a diminishing relevance of equity book value and alternative performance measures.