Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2005/23: The Value Relevance of Financial Reporting on the Oslo Stock Exchange over the Period 1964-2003

Øystein Gjerde (), Kjell Henry Knivsflå () and Frode Sættem ()
Additional contact information
Øystein Gjerde: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Kjell Henry Knivsflå: Dept. of Accounting, Auditing and Law, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Accounting, Auditing and Law, Helleveien 30, N-5045 Bergen, Norway
Frode Sættem: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: This article focuses on the value relevance of financial statements in Norway over the 40-year period from 1964 to 2003. Since Norwegian generally accepted accounting principles are based on an earnings-oriented conceptual view rather than a balance-oriented conceptual framework, like the ones adopted by the IASB and the FASB, this study provides interesting empirical evidence on the value relevance of earnings-oriented conceptual frameworks. Our main finding is that the value relevance of financial reporting for investors trading on the Oslo Stock Exchange has increased significantly over the past four decades. This result is obtained by evaluating the adjusted R2-metric from a stock market return regression over time using deflated earnings and deflated change in earnings as explanatory variables, and controlling for changes in underlying economic variables over the period. A significant time trend is consistent with the view that Norwegian accounting regulators and standard setters have been successful in achieving more value relevant financial statements over time. Norway is an example where employing an earnings-oriented conceptual framework has improved the value relevance of accounting information.

Keywords: Capital Markets; Financial Reporting; Equity Valuation; Value Relevance

JEL-codes: G10; G38; M41

32 pages, December 23, 2005

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