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The Impact of Recession on the Value-relevance of Accounting Information

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  • Gregory D. Kane
  • Ryan D. Leece
  • Frederick M. Richardson
  • Uma Velury

Abstract

type="main"> The Global Financial Crisis of 2007–2008, and the subsequent global economic downturn, has heightened the need for research on whether the value-relevance of accounting information is impacted by periods of macroeconomic decline. In this study, we examine whether the occurrence of a recession impacts the value-relevance of two key accounting constructs: book value of equity and earnings. Consistent with our priors, we find that controlling for recession significantly increases the value-relevance of both the book value of equity and earnings. Our findings indicate the importance of controlling for recession in value-relevance studies. Sample periods that include recession events, and that do not incorporate such conditioning, may be mis-specified, with results difficult, if not impossible, to interpret.

Suggested Citation

  • Gregory D. Kane & Ryan D. Leece & Frederick M. Richardson & Uma Velury, 2015. "The Impact of Recession on the Value-relevance of Accounting Information," Australian Accounting Review, CPA Australia, vol. 25(2), pages 185-191, June.
    • Handle: RePEc:bla:ausact:v:25:y:2015:i:2:p:185-191
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    File URL: http://hdl.handle.net/10.1111/auar.12045
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    References listed on IDEAS

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    Cited by:

    1. Melik Ertugrul & Volkan Demir, 2018. "How Does Unobserved Heterogeneity Affect Value Relevance?," Australian Accounting Review, CPA Australia, vol. 28(2), pages 288-301, June.

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