Value relevance of the book value and the earnings - Finnish public companies 2001-2012

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School of Business | Master's thesis
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In this study the development of the value relevance of the book value and the earnings was analyzed in the Finnish public companies during the period of 2001-2012. The special interest in this development was motivated by the compulsory adoption of the IFRS standards in the EU in middle of the data period (in 2005). The IFRS should, at least in theory, make the balance sheet more value relevant and therefore increase the value relevance of the book value too. The data contained bigger public companies from Finland. The used value relevance model was Ohlson's (1995) original value relevance model that included two independent variables: Abnormal earnings and the book value of the equity. Similarly to some empirical studies of the Ohlson's model, the abnormal earning was calculated by using the risk adjusted expected return on the equity. The risk adjustment was done with the business sector ?-estimates from the CAPM model. The scale effects have received a lot of attention in the literature and in this study therefore all three variables were deflated by the number of shares in order to mitigate the problems from possible scale effects. Robust regression was used both to analyze the outliers and to estimate the regressions. The main analysis was done with the yearly R2-decompositions. The empirical results showed that, in accordance with the theory, the role of the book value has been clearly bigger than the role of the earnings in explaining the market value since 2005. The relative role of the earnings, however, seems to have been quite small during the study period.
Value relevance of accounting information, Ohlson’s model, Capital asset pricing model, Finnish public companies, Robust regression
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