Changes in the value relevance of accounting information over time after the transition to IFRS : evidence from Norway

Abstract

We have used a sample of 212 firms, 1640 firm-year observations, listed on Oslo Stock Exchange over the time period 2005-2017 to analyze whether the value relevance of accounting information has increased over time after the transition to International Financial Reporting Standard (IFRS). To analyze the changes in value relevance, we have used a price regression model and time regression models, which are central value relevance regression models. By running the price regression model, we obtained value relevance measurements entering in the time regression models. The results from the time regression models, where we controlled for firm-specific and economic factors, were then used to analyze the changes in value relevance over time. We conclude with increased total value relevance in Norway over time after the transition to IFRS. The positive time trend is supported by increased value relevance of earnings over time, which is found to be associated with increased recognition of intangible assets. Increased extent of fair value accounting is found to contribute to increased value relevance of book value of equity over time. However, our robustness tests did reveal that the increasing value relevance of earnings over time may be driven by scale effects – and may actually be decreasing. The other results are robust. We conclude with the impact of IFRS over time, as the original standards have changed, on the total value relevance of accounting information in Norway has been positive. Therefore, we claim that IFRS reaches its objective of providing existing and potential equity investors, lenders and other creditors with useful financial information.