In this paper we critically evaluate the standard-setting inferences that can be drawn from value relevance research studies that are motivated by standard setting. Our evaluation concentrates on the theories of accounting, standard setting and valuation that underlie those inferences. Unless those underlying theories are descriptive of accounting, standard setting and valuation, the value-relevance literature's reported associations between accounting numbers and common equity valuations have limited implications or inferences for standard setting; they are mere associations. We argue that the underlying theories are not descriptive and hence drawing standard-setting inferences is difficult. JEL classification
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Table 1. Value-relevance papers classified by methodology and motivation View Within Article
Table 2. Comparison of conservatism of US income numbers over time by reporting regime, 1927–1993Average coefficients from yearly cross-sectional regressions of earnings on contemporaneous returns for different reporting regimes (Ely and Waymire Data), coefficients from pooled cross-sectional regressions of earnings on contemporaneous returns with dummies for different reporting regimes (Basu, 1997), coefficients from pooled cross-sectional regressions of earnings on contemporaneous returns (Ball et al., 2000a)a View the MathML source
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This paper was prepared for the Journal of Accounting and Economics Conference held April 28–29, 2000. We wish to thank Dennis Beresford, Philip Berger, Kirsten Ely, Rick Lambert, Fred Lindahl, Cathy Schrand, Greg Waymire, the discussants (Mary Barth, Bill Beaver and Wayne Landsman), the editors (S.P. Kothari, Tom Lys and Jerry Zimmerman) and workshop participants at Cornell University, George...