IMPLICATIONS OF ECONOMIC CRISES ON THE VALUE RELEVANCE OF ACCOUNTING INFORMATION IN BRAZILIAN COMPANIES

Abstract

This papers investigates the impact of financial crises occurred in Brazil (1997-1999, 2002 and 2007-2008) on the value relevance of book value and earnings. The final sample comprised 1,904 observations from Brazilian listed companies, from 1997 till 2010. It is an empirical study based on panel data regression. To answer the research question, a dummy was applied for each year of negative macroeconomic shocks and how they affected the relation between market prices and accounting variables. Empirical evidence indicates that financial crises affected the value relevance of book value positively and the value relevance of earnings negatively, similarly to other countries like Thailand and Mexico. Therefore, macroeconomic factors should be taken into consideration when analyzing how accounting information captures the underlying characteristics of a firm. Future research could consider companies from other countries in Latin America and evaluate if the effects are similar or not. This is important because macroeconomic policies implemented to mitigate the effects of a crisis could lead to different impacts on the relevance of accounting information.