International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Changes in Accounting Information Value Relevance and Cash Flow Prediction: Evidence from Korea
Jeong Youn Kim, Kimberly G. Key

This study examines changes in value-relevance of earnings and book values for stock prices and the ability of earnings to predict future operating cash flows when there is a substantial change in a country’s accounting standards and surrounding business and economic environment. The 1997 financial crisis in Korea precipitated the changes, and changes occurred well into the next decade with Korean policy makers adopting IFRS effective after 2010. Results show increased combined value relevance of current earnings and book value for stock prices as well as for earning and book value incrementally over the 1982 to 2011 period. The incremental relation between earnings and one-year ahead operating cash flows also increased, showing that changes in accounting standards motivated for external reasons (i.e., capital markets) can also have implications internal to firms. The results should be of interest in countries debating changes to domestic standards including possible IFRS adoption.

Full Text: PDF