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. How-ever Brown, Lo & Lys (1999) analytically show that the scale e¤ects present in levels regressions increase the R square value and this causes it to be an unreliable measure of relevance. Accordingly this study examines the value relevance of accounting using a di¤erent methodology that does not rely on R2. Speci\u85cally, we measure value relevance using price deated residuals derived from the estimation of the Ohlson (1995) valuation model. Empirical results based on this methodol-ogy clearly indicate the presence of a downward trend in the relevance of accounting during the past 51 years. Furthermore a comparison of High-Tech companies versus Low-Tech companies sug-gests accounting information being less value relevant for companies belonging to high technology industries. 1