The value relevance of financial reporting on the Oslo Stock Exchange over the period 1964-2003

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.