The impact of regulatory reform on the value-relevance of accounting information: Evidence from the 1993 regulatory reforms in New Zealand |
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Authors: | Ahsan Habib Sidney Weil |
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Institution: | a Department of Accounting, School of Business, Auckland University of Technology (AUT), Private Bag 92006, Auckland 1142, New Zealand b Centre for Accounting Education and Research (CAE&R), Commerce Division, Lincoln University, PO Box 84, Canterbury, New Zealand |
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Abstract: | This paper examines the impact of the 1993 financial reporting regulatory reforms in New Zealand on the value-relevance of accounting information. The study achieves this by regressing stock data of companies on book values and earnings for the pre- and post-regulatory periods. The Financial Reporting Act of 1993 was enacted in New Zealand as part of a wider package of company law reform. The 1987 share market collapse led to a Ministerial Committee of Inquiry that criticised the quality of financial reporting and the high level of non-compliance with accounting standards. The Committee recommended establishing an Accounting Standards Review Board to give the accounting standards a force of law. Whether this development increases the value-relevance of accounting information is an empirical question. The results, however, fail to find any significant increase in the total value-relevance of accounting information in the post-regulation period. There is, however, a corresponding increase in the incremental explanatory power of equity book values in the post-regulation period. This study also extends extant research on the effect of regulation on the value-relevance of accounting information by incorporating firm-specific factors to isolate the effect of regulation. |
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