Have Financial Statements Lost Their Relevance?

The authors explore the concern that financial statements no longer have the same relevance to investors that they had in the past. They test for “value relevance” by measuring the total return that could have been earned from prior knowledge of financial statement information and by examining the explanatory power of accounting information on market values and annual market-adjusted returns. Both analyses are applied to a broad sample of exchange-listed and Nasdaq firms for the 1952–94 period. The authors find mixed evidence on value relevance of financial statement reporting during the test period.