The value relevance of earnings and book value in the United States, United Kingdom, Canada, and Japa

Earnings and book value are the two most important summary numbers generated from the accounting process. Extant academic literature on the information content of accounting earnings provides extensive documentation on the association between accounting earnings and the market valuation of stocks. The information content of accounting book value, on the other hand, has not drawn as much attention as accounting earnings until recent theoretical work by Ohlson (1989), which formally links accounting book value with accounting earnings in the valuation model.;Ohlson's valuation model shows that both earnings and book value are value-relevant and that they complement each other in explaining market value. This is supported by recent empirical evidence in the U.S., which shows that while book value and earnings both are important in explaining the market valuation of stocks, they also correct the measurement error contained in the other. Since earnings and book value are products of accounting measurement rules, it is likely that, due to differences in conservatism, asset valuation (historical costs versus current cost) and in tax laws, the earnings number and book value number will have different value-relevance in different countries.;This study investigates the value relevance of accounting earnings and book value in four countries: the U.S., the U.K., Canada and Japan. The results indicate that accounting earnings, as well as accounting book values are both value-relevant in the U.S., U.K., Canada, and Japan. In each country, the book values are shown to have incremental information content over accounting earnings. Comparisons across the four countries also indicate that the individual value-relevance of earnings and book value are different, and that the overall value relevance of the two combined accounting summary numbers are different. The evidence from this study adds to existing international literature on the value-relevance of accounting earnings and book value. The empirical evidence provided by this study of the aggregate effect of GAAP differences on the value-relevance of accounting earnings and book value opens a research avenue for investigating fundamental factors that contribute to the differences. These factors may include accounting differences as well as differences in market efficiency in reflecting accounting information.