The Value Relevance of Financial Reporting in Norway 1965-2004

Abstract

We test the value relevance of financial statements in Norway over the 40 years before IFRS were introduced. An improved association between financial reporting and value creation enhances decision making and control. We find that the time trend of overall value relevance has increased significantly after controlling for changes in economic value relevance drivers. Neither the value relevance of the balance sheet nor the income statement has declined over time. The latter is surprising compared to previous studies, particularly on U.S. data. The most significant event is the Accounting Act of 1998. The contributions of other major accounting events are typically found to be positive, although their significance is less evident. Most importantly, our results suggest that performance accounting based on the matching principle is not necessarily in conflict with highly value relevant financial reporting.