Dw. Collins et al., CHANGES IN THE VALUE-RELEVANCE OF EARNINGS AND BOOK VALUES OVER THE PAST 40 YEARS, Journal of accounting & economics, 24(1), 1997, pp. 39-67
This paper investigates systematic changes in the value-relevance of e
arnings and book values over time. We report three primary findings. F
irst, contrary to claims in the professional literature, the combined
value-relevance of earnings and book values has not declined over the
past forty years and, in fact, appears to have increased slightly. Sec
ond, while the incremental value-relevance of 'bottom line' earnings h
as declined, it has been replaced by increasing value-relevance of boo
k values. Finally, much of the shift in value-relevance from earnings
to book values can be explained by the increasing frequency and magnit
ude of one-time items, the increasing frequency of negative earnings,
and changes in average firm size and intangible intensity across time.
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