Has the FASB and IASB's Shift toward an Asset/Liability View Enhanced the Predictive Usefulness of ROE?

Over the past several decades, accounting standard setters have been gradually shifting financial reporting toward an asset/liability view, by rewriting the underlying conceptual framework and issuing accounting standards that reflect this view. The asset/liability view enhances comparability of a firm’s investment base to that of its peers, and thus enhances the comparability of a firm’s return of equity (ROE). This, in turn, increases the transparency with which firm-specific performance differs from its peers. Greater transparency would be expected to improve predictive usefulness, but would also place greater pressure on a firm to meet the performance of its peers. In the US, I find that predictive usefulness has generally increased with the shift, indicating that rather than resulting in greater earnings management designed to mask firm-specific differences, the shift resulted in greater transparency of firm-specific accounting information. I also find predictive usefulness has increased in countries that have adopted IFRS, indicating that a further shift toward an asset/liability view to include the greater use of fair values common in IFRS further increased transparency of firm-specific accounting information in adopting countries. This suggests that expanding the use of fair values and/or adopting IFRS in the US may also result in greater reporting transparency. But as the predictive usefulness increases, I find that analysts in the US are not increasing their reliance on firm-specific accounting information, suggesting analysts remain skeptical, even though analysts would likely increase the efficiency in which they form their forecasts by relying more on accounting information.

Name thesis:degree_name

Doctor of Philosophy (PhD)

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Accounting

Grantor

Accounting

Year dc:date.available

2014

Author dc:creator

• Rosa, Regina Cavalier

• predictive usefulness
• international reporting
• reporting quality
• asset/liability view

Statement dc:rights

• unrestricted
• Release the entire work immediately for access worldwide.

Identifier

etd-06032014-123906
https://repository.lsu.edu/gradschool_dissertations/315

OAI identifier oai:identifier

oai:repository.lsu.edu:gradschool_dissertations-1314