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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27581
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| Title: | The Declining Value Relevance of Accounting Information and
Non-Information-Based Trading: An Empirical Analysis |
| Authors: | Dontoh, Alex
Radhakrishnan, Suresh
Ronen, Joshua |
| Keywords: | Noisy rational expectations equilibrium
Non-information-based trading
Value relevance |
| Issue Date: | 9-Aug-2000 |
| Series/Report no.: | Joshua Ronen-01 |
| Abstract: | Recently, a growing body of literature has suggested that financial
statements have lost their value relevance because of a shift from a
traditional capital-intensive economy to a hightechnology,
service-oriented economy. These conclusions are based on studies that
find a temporal decline in the association between stock prices and
accounting information (earnings and book values). This paper
empirically tests a theoretical prediction arising from the Noisy
Rational Expectations Equilibrium model that suggests that the decline
could be driven by non information based (NIB) trading activity, because
such trading reduces the ability of stock prices to reflect accounting
information. Specifically, Dontoh et al. (2004) show that when NIB
trading increases, the R-squares of a regression of stock price on
accounting information declines. Our empirical tests confirm this
prediction; i.e., the decline in the association between stock prices
and accounting information as measured by R-squares is driven by an
increase in NIB trading. |
| URI: | http://hdl.handle.net/2451/27581 |
| Appears in Collections: | Accounting Working Papers
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