A Review on the Literature of Value Relevance of Financial and Accounting Variables

Abstract

There have been numerous pragmatic and practical studies which have talked about value relevance in developed countries and now there is a growing literature of value relevance for the emerging economies too. The various studies have been conducted to test the value relevance of earnings and its association with the value of equity. Different stock markets have different value relevance. The aim of this paper is to review the studies relating to accounting information, the methodologies used and summarizing the results. This would provide a set of guidelines for future research. Various past studies have investigated the association between accounting numbers and stock prices and many of them has shown that this association is declining over time but at the same time there are contradictory views declaring and affirming the claim that accounting information is losing its value relevance is precipitate  and early.

The studies related to value relevance have not been new and exists from over 40 years. It is important and requires more insight about the inclusion of intangible assets as non reporting of such assets in the financial statements is becoming the major cause of declining relevance.