ABSTRACT: (THE VALUE RELEVANCE OF ACCOUNTING AMOUNTS IN LOSS FIRMS. THEORETICAL BACKGROUND AND EMPIRICAL EVIDENCE). This paper will first aim at providing an overview of the state of the art in the field of research concerning the value rele- vance of accounting amounts in loss firms. To such an aim, it will need to clarify value relevance specifications used in literature in order to avoid potential biases due to the presence of loss firms. Then, by conducting an empirical analysis, it will aim at comparing the explanatory power of the different model specifications, other than assessing the value relevance of earnings and book value disclosed by loss firms compared with the ones disclosed by entities with positive earnings. Methodologically, while we used the adjusted R2 to measure the explanatory power of the different model specifications, to assess the value relevance of accounting amounts, we estimated the regression coefficients of a modified ver- sion of the Ohlson (1995) model whose variables have been deflated by the number of shares to avoid biases due to the scale effects. Data have been downloaded from the Datastream database and refer to a sample of 4.240 entities listed in the 15 European countries that joined the European Union (EU) after the issuance of Regulation 1606/2002. Our findings confirm our hypotheses that the model with the high- est explanatory power is the one that allows loss firms to have different intercept and slopes with respect to firms with positive earnings. More- over, we find that while earnings disclosed in the annual report of loss firms are less value relevant than those disclosed by entities with positive earnings, book value is more value relevant in the annual report of loss firms. In our opinion, these findings contribute to the literature for the implications they may add to the debate about the most appropriate model to be adopted to assess the value relevance of accounting amounts in samples with a significant number of firms with negative earnings. Furthermore, they can make a significant contribution to the ongoing debate on the value relevance of accounting amounts disclosed in the annual reports of loss firms compared with the ones disclosed by entities with positive earnings.
KEYWORDS: value relevance, loss firms, IAS/IFRS.
