There has been concern expressed both in Australia and overseas, that financial statement information has lost its value relevance due to changes in the economy. This study investigates the value relevance of financial statement information of Australian listed companies.
Firstly, this study investigates whether firm, regulatory and economic characteristics of financial statements are value relevant. Secondly, it investigates whether these characteristics have changed over time. Thirdly, it investigates whether the value relevance of the financial statements of Australian listed companies has changed over time. This study determines whether any change in value relevance over time is associated with any temporal change in characteristics.
Using the price, earnings and book values relationship, this study found that there was not any significant change in the value relevance of financial statements over time. All of the firm, regulatory and economic characteristics of size, growth, auditor type, qualified opinion, disclosure, cash flows, intangible assets and negative earnings were found to be value relevant. It was also found that the value relevance of most of these characteristics had changed over time.
An analysis of the return-earnings relationship established that the value relevance of the financial statements of Australian listed companies had declined at a significant rate over time. It was found that negative earnings and size were positively associated with the decline in value relevance. Growth was negatively associated with this decline.