Relationship between the accounting asset informativeness and Brazilian companies’ systematic risk
Keywords:
PortuguêsAbstract
Objective: This study analyzed a potential relationship between accounting asset informativeness and
Brazilian companies’ systematic risk. The research hypothesis assumes that factors restricting uncertainty,
including better-quality information, decrease investors’ risk perception.
Method: Regressions were estimated with panel data, using data concerning 2010 to 2021 from 186
companies. In addition to overall asset informativeness, the analysis included informativeness resulting
from the companies’ choices (discretionary portion) and informativeness inferred from related companies
in the same sector (non-discretionary portion).
Results: Asset informativeness proved relevant and negatively associated with the Brazilian companies’
systematic risk, with its non-discretionary portion having a more intense effect on systematic risk than
the discretionary portion.
Contributions: This study’s results are relevant for users of accounting information, those who prepare
accounting reports, and regulators as it contributes to the discussion on the quality of accounting
information, highlighting its relationship with the systematic risk of companies through a measure
focused on assets, and suggesting metrics that can assist in the estimation of the companies’ value, besides
providing evidence of the economic consequences of accounting choices.
References
Andrei, D., Mann, W., & Moyen, N. (2019). Why did the q theory of investment start working?. Journal of Financial Economics, 133(2), 251-272. https://doi.org/10.1016/j.jfineco.2019.03.007
Armstrong, C. S., Banerjee, S., & Corona, C. (2013). Factor-loading uncertainty and expected returns. The Review of Financial Studies, 26(1), 158-207. https://doi.org/10.1093/rfs/hhs102
Atiase, R. K. (1985). Predisclosure information, firm capitalization, and security price behavior around earnings announcements. Journal of Accounting Research, 21-36. https://doi.org/10.2307/2490905
Bai, J., Philippon, T., & Savov, A. (2016). Have financial markets become more informative?. Journal of Financial Economics, 122(3), 625-654. https://doi.org/10.1016/j.jfineco.2016.08.005
Ball, R., & Brown, P. (1968). An empirical evaluation of accounting income numbers. Journal of Accounting Research, 159-178. https://doi.org/10.2307/2490232
Barth, M. E., Beaver, W. H., & Landsman, W. R. (2001). The relevance of the value relevance literature for financial accounting standard setting: another view. Journal of Accounting and Economics, 31(1-3), 77-104. https://doi.org/10.1016/S0165-4101(01)00019-2
Barth, M. E., Li, K., & McClure, C. G. (2023). Evolution in value relevance of accounting information. The Accounting Review, 98(1), 1-28. https://doi.org/10.2308/TAR-2019-0521
Barton, S. L. (1988). Diversification strategy and systematic risk: Another look. Academy of Management Journal, 31(1), 166-175. https://doi.org/10.5465/256503
Beaver, W. H. (1968). The information content of annual earnings announcements. Journal of Accounting Research, 67-92. https://doi.org/10.2307/2490070
Beaver, W., Kettler, P., & Scholes, M. (1970). The association between market determined and accounting determined risk measures. The Accounting Review, 45(4), 654-682. https://www.jstor.org/stable/244204
Black, F. (1980). The magic in earnings: Economic earnings versus accounting earnings. Financial Analysts Journal, 36(6), 19-24. https://doi.org/10.2469/faj.v36.n6.19
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of Finance, 52(1), 57-82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
Castagna, A. D., & Matolcsy, Z. P. (1978). The relationship between accounting variables and systematic risk and the prediction of systematic risk. Australian Journal of Management, 3(2), 113-126. https://doi.org/10.1177/031289627800300
Chen, Q., Schipper, K., & Zhang, N. (2022). Measuring Accounting Asset Informativeness. The Accounting Review, 97(4), 209-236. https://doi.org/10.2308/TAR-2019-0585
Damodaran, A. (2016). Damodaran on valuation: security analysis for investment and corporate finance. John Wiley & Sons.
DeAngelo, L. E. (1986). Accounting numbers as market valuation substitutes: A study of management buyouts of public stockholders. Accounting review, 400-420. https://www.jstor.org/stable/247149
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting Review, 193-225. https://www.jstor.org/stable/248303
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2-3), 344-401. https://doi.org/10.1016/j.jacceco.2010.09.001
Dichev, I. D., & Tang, V. W. (2009). Earnings volatility and earnings predictability. Journal of accounting and Economics, 47(1-2), 160-181. https://doi.org/10.1016/j.jacceco.2008.09.005
Dutta, S., & Nezlobin, A. (2017). Dynamic effects of information disclosure on investment efficiency. Journal of Accounting Research, 55(2), 329-369. https://doi.org/10.1111/1475-679X.12161
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56. https://doi.org/10.1016/0304-405X(93)90023-5
Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1-22. https://doi.org/10.1016/j.jfineco.2014.10.010
Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2005). The market pricing of accruals quality. Journal of Accounting and Aconomics, 39(2), 295-327. https://doi.org/10.1016/j.jacceco.2004.06.003
Fuji, A. H. (2004). O conceito de lucro econômico no âmbito da contabilidade aplicada. Revista Contabilidade & Finanças, 15, 74-86. https://doi.org/10.1590/S1519-70772004000300004
Hayashi, F. (1982). Tobin's marginal q and average q: A neoclassical interpretation. Econometrica: Journal of the Econometric Society, 213-224. https://doi.org/10.2307/1912538
Healy, P. M. (1985). The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7(1-3), 85-107. https://doi.org/10.1016/0165-4101(85)90029-1
Hong, G., & Sarkar, S. (2007). Equity systematic risk (beta) and its determinants. Contemporary Accounting Research, 24(2), 423-466. https://doi.org/10.1506/8187-56KM-6511-Q532
Hou, K., Xue, C., & Zhang, L. (2015). Digesting anomalies: An investment approach. The Review of Financial Studies, 28(3), 650-705. https://doi.org/10.1093/rfs/hhu143
Hughes, J. S., Liu, J., & Liu, J. (2007). Information asymmetry, diversification, and cost of capital. The Accounting Review, 82(3), 705-729. https://doi.org/10.2308/accr.2007.82.3.705
International Accounting Standards Board. (2018). Conceptual framework for financial reporting. https://www.ifrs.org/issued-standards/list-of-standards/conceptual-framework/
Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228. https://doi.org/10.2307/2491047
Jose, M. L., & Stevens, J. L. (1987). Product market structure, capital intensity, and systematic risk: empirical results from the theory of the firm. Journal of Financial Research, 10(2), 161-175. https://doi.org/10.1111/j.1475-6803.1987.tb00488.x
Kanodia, C., Singh, R., & Spero, A. E. (2005). Imprecision in accounting measurement: Can it be value enhancing?. Journal of Accounting Research, 43(3), 487-519. https://doi.org/10.1111/j.1475-679X.2005.00178.x
Kothari, S. P., Laguerre, T. E., & Leone, A. J. (2002). Capitalization versus expensing: Evidence on the uncertainty of future earnings from capital expenditures versus R&D outlays. Review of Accounting Studies, 7(4), 355-382. https://doi.org/10.1023/A:1020764227390
Koussis, N., & Makrominas, M. (2015). Growth options, option exercise and firms’ systematic risk. Review of Quantitative Finance and Accounting, 44, 243-267. https://doi.org/10.1007/s11156-013-0405-5
Lambert, R., Leuz, C., & Verrecchia, R. E. (2007). Accounting information, disclosure, and the cost of capital. Journal of Accounting Research, 45(2), 385-420. https://doi.org/10.1111/j.1475-679X.2007.00238.x
Lev, B. (1974). On the association between operating leverage and risk. Journal of Financial and Quantitative Analysis, 9(4), 627-641. https://doi.org/10.2307/2329764
Li, X., & Wibbens, P. D. (2023). Broken Effects? How to Reduce False Positives in Panel Regressions. Strategy Science, 8(1), 103-116. https://doi.org/10.1287/stsc.2022.0172
Lintner, J. (1965). Security prices, risk, and maximal gains from diversification. The Journal of Finance, 20(4), 587-615. https://doi.org/10.2307/2977249
Ma, M. (2017). Economic links and the spillover effect of earnings quality on market risk. The Accounting Review, 92(6), 213-245. https://doi.org/10.2308/accr-51715
Mohanram, P. S. (2005). Separating winners from losers among lowbook-to-market stocks using financial statement analysis. Review of Accounting Studies, 10, 133-170. https://doi.org/10.1007/s11142-005-1526-4
Mossin, J. (1966). Equilibrium in a capital asset market. Econometrica: Journal of The Econometric Society, 768-783. https://doi.org/10.2307/1910098
Ohlson, J. A. (1995). Earnings, book values, and dividends in equity valuation. Contemporary Accounting Research, 11(2), 661-687. https://doi.org/10.1111/j.1911-3846.1995.tb00461.x
Patton, A. J., & Verardo, M. (2012). Does beta move with news? Firm-specific information flows and learning about profitability. The Review of Financial Studies, 25(9), 2789-2839. https://doi.org/10.1093/rfs/hhs073
Piotroski, J. D. (2000). Value investing: The use of historical financial statement information to separate winners from losers. Journal of Accounting Research, 1-41. https://doi.org/10.2307/2672906
Ross, S. A., Westerfield, R., Jaffe, J. F., Jordan, B. D., Jaffe, J., & Jordan, B. (2002). Corporate Finance. New York: McGraw-Hill Education.
Sarmiento-Sabogal, J., & Sadeghi, M. (2015). Estimating the cost of equity for private firms using accounting fundamentals. Applied Economics, 47(3), 288-301. https://doi.org/10.1080/00036846.2014.969826
Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425-442. https://doi.org/10.1111/j.1540-6261.1964.tb02865.x
Soliman, M. T. (2008). The use of DuPont analysis by market participants. The Accounting Review, 83(3), 823-853. https://doi.org/10.2308/accr.2008.83.3.823
Subrahmanyam, M. G., & Thomadakis, S. B. (1980). Systematic Risk and the Theory of the Firm. The Quarterly Journal of Economics, 94(3), 437-451. https://doi.org/10.2307/1884578
Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of Money, Credit and Banking, 1(1), 15-29. https://doi.org/10.2307/1991374
Xing, X., & Yan, S. (2019). Accounting information quality and systematic risk. Review of Quantitative Finance and Accounting, 52, 85-103. https://doi.org/10.1007/s11156-018-0703-z
Xing, Y. (2008). Interpreting the value effect through the Q-theory: An empirical investigation. The Review of Financial Studies, 21(4), 1767-1795. https://doi.org/10.1093/rfs/hhm051
Wiyono, E. R., & Mardijuwono, A. W. (2020). Leverage, Profitability, Firm Size, Exchange Rate, and Systematic Risk: Evidence from the Manufacturing Industry in Indonesia. Cuadernos de Economía, 442-448. https://cude.es/submit-a-manuscript/index.php/CUDE/article/view/28
Wu, J., Zhang, L., & Zhang, X. F. (2010). The q‐theory approach to understanding the accrual anomaly. Journal of Accounting Research, 48(1), 177-223. https://doi.org/10.1111/j.1475-679X.2009.00353.x
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Journal of Education and Research in Accounting (REPeC)
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Authors who publish with this journal agree to the following terms:
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under Creative Commons Attribution 3.0 Unported License, which allows the sharing of the work and recognition of authorship and its initial publication in this journal. This license allows others to distribute, remix, adapt, or create derivative works, even for commercial purposes, provided credit is given for the original creation.
b)There is no financial compensation to the authors in any capacity, for articles published in RePEc.c) The articles published in RePEc are the sole responsibility of the authors.
