회계이익의 미래현금흐름 및 미래이익 예측능력이 가치관련성에 미치는 영향

Abstract

Prior research document the usefulness of earnings for explaining contemporaneous stock prices has been declining over time (Collins et al. 1997; Francis and Schipper 1999; Kim and Kross 2005). Collins et al.(1997) shows that the incremental R2 of earnings for explaining stock prices over book values (a proxy for earnings usefulness) declined from a high of 30 percent to approximately seven percent. Kim and Kross(2005) find the relation has further deteriorated to 5.7 percent during 1992-2000 while the ability of current earnings to predict future operating cash flows more than doubled during the same period. Because a stock price is the present value of future cash flows, the intertemporal decline in earnings usefulness is called “puzzling” (Kim and Kross 2005). Bandyopadhyay et al.(2010) provides a temporal increase in accounting conservatism as one possible reason for “Kim and Kross(2005) puzzle”. They first show that accounting conservatism is positively related to earnings’ future cash flow predictability (defined as “relevance”), but negatively related to earnings’ future earnings predictability (defined as “reliability”). They then show that earnings usefulness is positively related to earnings’ future earnings predictability, not related to future cash flow predictability. Their results indicate that accounting conservatism leads to trade-off between relevance and reliability; as a result, declining in earnings’ usefulness may be observed with increasing earnings’ future cash flow predictability due to decreasing earnings’ future earnings predictability. Although Bandyopadhyay et al.(2010) link earnings’ future earnings predictability to reliability, this is also proxy for earnings’ predictive ability to future firm performance. Even though their notion is admitted, their results that earnings usefulness is positively related to earnings’ reliability only are inconsistent with the conceptual framework for financial reporting, which represent relevance and faithful representation as fundamental qualitative characteristics of useful financial information. Their results are also inconsistent with Barth(2006) asserting that predictability of future cash flow rather than that of future earnings is important for financial statement users. In this paper, we extend Bandyopadhyay et al.(2010) and investigate cross-sectional and time-series variation in the relation between the value relevance of earnings and the ability of earnings to predict future firm performance. Similar to Bandyopadhyay et al.(2010), we link the usefulness of earnings to the ability to predict future cash flows and the ability to predict future earnings. Second, we explore whether the relationship between earnings usefulness and its ability to predict future cash flows and/or future earnings varies with the properties of earnings such as the variabilities of earnings. Third, we examine the intertemporal trend in the relationship between earnings usefulness and earnings predictabilities of future cash flows and/or future earnings. We first provide empirical evidence that both predictabilities of future cash flows and/or future earnings enhance earnings usefulness. Second, under a high degree of earnings variabilities, earnings predictability of future cash flows is more important. Third, the relationship of earnings usefulness with earnings ability to predict future cash flows became stronger in recent years while the relationship with earnings ability to predict future earnings remained or became weaker. Taken together, the more current earnings contain information about future firm performance, such as future earnings or future cash flows, the more investors use current earnings in their investment decisions. Especially, the recent trend that the relationship between earnings’ value relevance and earnings’ predictabilities of future cash flows becomes stronger shows that the primary information for investment decision has been changed. Our results imply that Bandyopadhyay et al.(2010)’s findings are attributable to disregarding the cross-sectional and time-series variation in useful information for investors. The primary results of our study remain robust even when we measure earnings by net income rather than earnings from continuing operations, we loosen the restriction on the requirement of 10-year data by 5 years, and we consider variabilities of accruals. This study can be extended in various contexts by employing the research method used here. First, the accuracy of earnings forecasts by managers and/or analysts may vary with earnings ability to predict future cash flows or future earnings. Second, it would be interesting to examine the impact of IFRS adoption on the relationship between earnings usefulness and earnings’ ability to predict future cash flows and/or future earnings given that other comprehensive income becomes important as IFRS expands the scope of assets and liabilities to be recorded at fair value. Third, researchers may analyze whether the relationship of earnings usefulness with the ability to predict future cash flows and future earnings vary with the properties of earnings such as earnings persistence, earnings management and other measures of earnings quality. This study is worthwhile in that the current market assessment is linked to the past properties of earnings and the future predictability of future cash flows and future earnings.