Abstract

In Korea, many prior studies show that the relevance of accounting information has been improved, following the continuous efforts to improve the accounting system, after the financial crisis in 1997. However, many studies also show that accounting conservatism has increased after the crisis, leading to lowered relevance of accounting information. In addition, the results of prior research cannot be perfectly credible, because the prior studies investigated short period after the crisis(for example, until 2000 year). Therefore, the purpose of this study is to investigate again the trends of the relevance of accounting information before and after the crisis, focused on the effects of the efforts to improve the accounting system. Especially, the methods used in this study are different from those in the prior studies in three perspectives. This paper 1) controls for scale effect, 2) estimates yearly measure of the relevance of accounting information, and 3) tries various analysis, using returns－earnings model, portfolio return comparison, and price－accounting information model, which are believed to improve the reliability of the results of this paper. The sample of this paper are selected from the manufacturing firms, listed on the Exchange, as of the calendar year end, during 1988－2006. The empirical results are as follows. As the time was approaching to the financial crisis, the relevance of the accounting information has decreased and suddenly dropped when the crisis was recognized. However, after the crisis, the decreasing trends, shown before the crisis, disappeared or reverted to the increasing trends. In addition, in the price－accounting information model, it is observed that while the importance of accounting earnings is decreasing, the importance of net assets is increasing, which is contrary to the prior studies' result that the importance of net assets was not observed.

Keywords

• Relevance of accounting information
• returns－earnings model
• price－accounting information model
• adjusted
• earnings response coefficient
• regression coefficient of accounting earnings
• regression coefficient of net assets

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