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The Development of Value Relevance of IAS and IFRS over Time: The Case of Germany
Henghsiu Lin, University of Portland
Mari Paananen, University of Hertfordshire
ABSTRACT. We examine the relative and the incremental value relevance of earnings (E) and equity book value (BVE) under IAS (2000-2002) and under IFRS (2003-2004) for German firms. We compare these periods to 2005 to investigate whether EU’s mandatory adoption of IFRS changed the characteristics of companies reporting under IFRS and how this impacted the incremental value relevance of E and BVE. We find that value relevance of E and BVE has increased significantly over time. The incremental value relevance of BVE and E increase between IAS and IFRS, however, only the increase in BVE is statistically significant suggesting that the fair-value orientation in the recent international standards increase the incremental informational content of both E and BVE, with the market relying more on BVE. Moreover, larger and more profitable companies in the IFRSMANDATORY sample could explain the significant drop in the incremental value relevance of BVE between IFRS_VOLUNTARY and IFRS_MANDATORY.
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