Changing Business Environment And The Value Relevance Of Accounting Information
The R2 of yearly regressions of prices on Earnings Per Share (EPS) and Book Value Per Share (BVPS) has commonly been used to measure the value relevance of accounting information. However Brown, Lo & Lys (1999) analytically show that the scale effects present in levels regressions increase the R square value and this causes it to be an unreliable measure of relevance. Accordingly this paper examines the value relevance of accounting using a different methodology that does not rely on R2. Specifically, the authors measure value relevance using price deflated residuals derived from the estimation of the Ohlson (1995) valuation model.