Income statement mismatching has not reduced the informativeness of earnings over time

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Research has concluded that there has been a decline in the informativeness of earnings over recent years. The reported decline has been attributed to an increasing mismatch of expenses to revenues due to the increasing expensing of investments in so-called intangible assets to the income statement. That suggests a remedy is required and, with accounting standards boards now considering intangible asset accounting, the issue is particularly pertinent. However, his paper challenges the conclusions from the research by documenting that the mismatching adds information for pricing. It does so by distinguishing higher risk investment from that booked to the balance sheet, and the market prices it as such. Further, in a seeming contradiction, the mismatching enhances matching, and empirical tests confirm. Once mismatched expenses and matched earnings are separated, there is little indication of a decline in the information content of accounting over time.
Publisher
WILEY
Issue Date
2024-03
Language
English
Article Type
Article
Citation

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, v.51, no.3-4, pp.756 - 782

ISSN
0306-686X
DOI
10.1111/jbfa.12759
URI
http://hdl.handle.net/10203/322796
Appears in Collection
MT-Journal Papers(저널논문)
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