Brown, Lo and Lys (1999)

Brown, Lo and Lys (1999) claim value relevance of accounting numbers are in fact declining for the past 4 decades. This claim is contradicting the results of studies done by Collins et al. 1997 whereby the value relevance of accounting numbers are increasing and decreasing over the years.

Brown et al. (1999) suspected that the increase or decrease is due to the effect of scale. They tested the association between market value and scale. They concluded that the increase or decrease in value relevance of accounting numbers is affected by the interaction between the coefficient of scale and book value and earnings that resulted in increase or decrease in value relevance of accounting numbers measured by R2.

(To be continued)