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Economic Consequences of the Declining Relevance of Financial Reports

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  • Nishi Sinha
  • John Watts

Abstract

The proliferation of alternative information sources has reduced the relevance of corporate annual reports. This paper examines economic outcomes in an oligopolistic industry as investors become better informed but financial reports convey a smaller portion of the total information. Results show that an increase in alternate sources of information, and the resulting decline in relevance of financial reports, leads to a loss in economic efficiency despite the presence of additional information. Investors benefit, but at the expense of consumers and social welfare. Investors benefit not necessarily because the amount of information in the economy increases, but because there is a change in the channels through which the same information is communicated.

Suggested Citation

  • Nishi Sinha & John Watts, 2001. "Economic Consequences of the Declining Relevance of Financial Reports," Journal of Accounting Research, Wiley Blackwell, vol. 39(3), pages 663-681, December.
    • Handle: RePEc:bla:joares:v:39:y:2001:i:3:p:663-681
    DOI: 10.1111/1475-679X.00033
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    Cited by:

    1. Morris, John J. & Alam, Pervaiz, 2012. "Value relevance and the dot-com bubble of the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 243-255.
    2. Ricardo F. Reis & Phillip C. Stocken, 2007. "Strategic Consequences of Historical Cost and Fair Value Measurements," Contemporary Accounting Research, John Wiley & Sons, vol. 24(2), pages 557-584, June.

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