Value relevance of earnings and book value of equity in profit versus loss reporting firms: significance of intangible intensity

Purpose - This study aims to investigate how the intangible intensive nature of firms affects the value relevance of earnings and the book value of equity between profit- and loss-reporting firms. The study also examines how firms’ intangible intensity affects the value relevance of R&D outlays between profit- and loss-reporting firms. Design/methodology/approach - An empirical analysis based on Ohlson’s (1995) framework is used. A total of 54,421 firm-year observations of Indian listed firms from financial years 1992–2016 constitute the study sample. Findings - The findings suggest that the difference in the value relevance of earnings and the book value of equity between profit- and loss-reporting firms is more significant in non-intangible intensive firms than in intangible firms. Specifically, earnings are more value relevant in profit-reporting and non-intangible intensive firms, whereas book value of equity is more value relevant in loss-reporting and intangible intensive firms. The results also suggest that the difference in the incremental value relevance of R&D information between profit- and loss-making firms is higher in intangible intensive firms than in non-intangible intensive firms. Practical implications - The findings of this study can help managers, standard-setters and investors make effective decisions. Originality/value - This study offers insights into the impact of intangible intensity on the value relevance of aggregated and disaggregated accounting information between profit- and loss-making firms in institutional settings where capitalization of R&D expenditures is allowed.