Project information
Evolution of value relevance and its effect on earnings manipulation

The project focuses on the relevance of information from financial statements in the valuation process and its impact on earnings management. Value relevance of financial information describes how important specific data are for the investors as financial statement users. The research focuses only on publicly traded companies. The previous studies found that the value relevance has changed dramatically, which relates to the changing structure of companies from industrial to knowledge–based. This structure can be called intangible intensity. Thus, this research investigates two areas. The first objective is to estimate the relationship between intangible intensity and value relevance through different metrics, such as Return on tangible assets (ROTA). And finally, I estimate the effect of value relevance on earnings management. This relationship is assumed based on survey results, which confirm that the executives understand the importance of specific accounting items, such as earnings. Knowledge of value relevance is also taken in various financial frameworks, such as IFRS or US GAAP. Thus, they could use particular types of earnings management to avoid the negative reverse effect by choosing and negatively influencing important items for investors. The results may indicate whether executives realize the importance of accounting information for the company's valuation and use this knowledge in accounting manipulations.