The relevance of the value relevance literature for financial accounting standard setting: another view |
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| Institution: | 1. Graduate School of Business, Stanford University, Stanford, CA 94305-5015, USA;2. Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC 27599-3490, USA;1. Pennsylvania State University, United States;2. Wayne State University, United States;3. Singapore Management University, Singapore;1. Singapore Management University, Singapore;2. Tsinghua University, China;1. Research School of Accounting and Business Information Systems, Australian National University, Australia;2. Business School, Durham University, United Kingdom |
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| Abstract: | This paper explains that value relevance research assesses how well accounting amounts reflect information used by equity investors, and provides insights into questions of interest to standard setters. A primary focus of financial statements is equity investment. Other uses of financial statement information, such as contracting, do not diminish the importance of value relevance research. Value relevance questions can be addressed using extant valuation models. Value relevance studies address econometric issues that otherwise could limit inferences, and can accommodate and be used to study the implications of accounting conservatism. |
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