Value Relevance of Accounting Information - A Swedish Perspective

Abstract

Background and problem: The research field of value relevance examines the relationship between stock prices and accounting information. It is comprehensive and constitutes a large body of literature. However, value relevance studies from different countries often show contradictory results, partly because accounting regulations differ between countries. Earlier research on the value relevance of accounting information in Sweden has been conducted and suggests that accounting information is value relevant in Sweden. However, the development in 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 to find out whether there has been a change in the value relevance of accounting information since 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 change in the value relevance of earnings, the study does not attempt to explain why such a change might have occurred. Neither does it attempt to explain stock prices in whole; only the explanation 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 market return, that is the change in market value during a year, depends on the level of earnings and the change in earnings from the previous year. The data was analyzed in SPSS using a linear multivariate 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 studies that have found R2’s in the range between five and ten per cent. In comparison with the results of the Marton (1998) study, one can conclude that the value relevance of earnings in Sweden has stayed much the same over the years. However, no dot-com companies were included in this study, which, if they had been, might have generated quite different results. With these findings 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 in Sweden, for further research it would be interesting to find out the value relevance of other accounting figures, such as owner’s equity, cash flow, and earnings components. It would also be interesting to see more comparative studies between the value relevance of accounting information in Sweden and the value relevance in another country.