Has Financial Statement Information become Less Relevant?:The Danish Experience

This paper presents insights into the question of whether accounting information based on the EU’s Accounting Directives has become less value-relevant to investors over time. The study is based on a research design first used by Francis and Schipper (1999), where value-relevance is measured as the total market-adjusted return that could be earned from investment strategies based on foreknowledge of financial statement information. It answers the question: Are investments based on financial statement information able to capture progressively less information in security returns over time? The sample is based on non-financial companies listed on the Copenhagen Stock Exchange in the period 1984-2002. Our analyses show that all the applied accounting measures are value-relevant as investment strategies based on the information earn positive market-adjusted returns in our sample period. The results provide some indication of a decline in the value-relevance of earnings information in the 1984-2001 period, and mixed, but not statistically reliable, evidence for accounting measures where book value information and asset values are also extracted from financial statements. The results seem to indicate a slight decrease in value-relevance in 2002 following the switch to more internationally oriented accounting regulations