Disentangling Relevance from Reliability in Value Relevance Tests
The literature shows that during the COVID-19 pandemic, the value relevance of earnings decreased. Traditionally, the literature measures value relevance using the relationship between stock returns and earnings. However, these tests are, in fact, “joint tests of relevance and reliability”. This cav...
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| Veröffentlicht in: | Sustainability 2022-10, Vol.14 (20), p.13449 |
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| creator | Shust, Efrat Weiss, Dan |
| description | The literature shows that during the COVID-19 pandemic, the value relevance of earnings decreased. Traditionally, the literature measures value relevance using the relationship between stock returns and earnings. However, these tests are, in fact, “joint tests of relevance and reliability”. This caveat can distort the measurement of relevance, especially during the COVID-19 pandemic where the exceptional level of uncertainty could have affected relevance and reliability to different extents. This study disentangles reliability and relevance by extending the value relevance test. We use this extended test to examine firm categories in two dimensions: profits versus losses and intensive versus scarce use of accounting estimates. The results show that reliability and relevance are complementary when both are sufficiently high, but reliability has no significant impact on the usefulness of earnings when relevance is weak. |
| doi_str_mv | 10.3390/su142013449 |
| format | Article |
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| source | Elektronische Zeitschriftenbibliothek - Frei zugängliche E-Journals; MDPI - Multidisciplinary Digital Publishing Institute |
| subjects | Accounting Analysis Coronaviruses COVID-19 Epidemics Event history analysis Financial reporting Financial statements Investments Losses Medical research Methods Pandemics Profits Relevance Reliability Return on investment Sustainability |
| title | Disentangling Relevance from Reliability in Value Relevance Tests |
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