THE DECLINE IN VALUE RELEVANCE OF EARNINGS AND BOOK VALUES

This study examines changes in the value relevance of earnings and book values over the past four decades. Using the residual income valuation approach, I develop three new measures of value relevance. My results, based on alternative measures of value relevance that differ from earlier studies (Francis and Schipper 1998; Collins, Maydew, and Weiss 1997) suggest that the value relevance of earnings and book values has declined over time. I find that the structural change in the value relevance of accruals occurred in the mid-1970's.