The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands

Y. Wang, W.F.J. Buijink, R.C.W. Eken Ra

Research output: Working paperDiscussion paperOther research output

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Abstract

Recently the Dutch financial reporting standard setters have taken steps to make dirty surplus accounting flows more visible to parties outside firms, either by eliminating their possibility or by requiring comprehensive income type statements. These steps are presumably based on the idea that dirty surplus accounting flows are value relevant to investors and hence have to be visible to them. Whether dirty surplus accounting flows are indeed value relevant is an empirical issue. This paper therefore explores both incremental and relative value relevance of various dirty surplus accounting flows for Dutch listed firms. We find evidence that dirty surplus goodwill write-offs in particular are relevant in explaining returns and that the clean surplus earnings perform better than the reported earnings over 1-year intervals. Taken together, these 1-year interval empirical results indeed imply that the Dutch managers in the period considered wrote-off value relevant information via dirty surplus accounting flows. Over longerterm intervals, dirty surplus items are not or negatively related to returns and reported income becomes more value relevant than clean surplus income.
Original languageEnglish
Place of PublicationTilburg
PublisherAccounting
Number of pages29
Volume2003-63
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-63

Fingerprint

Surplus
Value relevance
The Netherlands
Income
Investors
Empirical results
Managers
Goodwill
Write-offs
Financial reporting
Incremental
Comprehensive income

Keywords

  • accounting
  • incomes
  • value relevance
  • Netherlands

Cite this

Wang, Y., Buijink, W. F. J., & Eken Ra, R. C. W. (2003). The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands. (CentER Discussion Paper; Vol. 2003-63). Tilburg: Accounting.
Wang, Y. ; Buijink, W.F.J. ; Eken Ra, R.C.W. / The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands. Tilburg : Accounting, 2003. (CentER Discussion Paper).
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Wang, Y, Buijink, WFJ & Eken Ra, RCW 2003 'The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands' CentER Discussion Paper, vol. 2003-63, Accounting, Tilburg.

The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands. / Wang, Y.; Buijink, W.F.J.; Eken Ra, R.C.W.

Tilburg : Accounting, 2003. (CentER Discussion Paper; Vol. 2003-63).

Research output: Working paperDiscussion paperOther research output

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AB - Recently the Dutch financial reporting standard setters have taken steps to make dirty surplus accounting flows more visible to parties outside firms, either by eliminating their possibility or by requiring comprehensive income type statements. These steps are presumably based on the idea that dirty surplus accounting flows are value relevant to investors and hence have to be visible to them. Whether dirty surplus accounting flows are indeed value relevant is an empirical issue. This paper therefore explores both incremental and relative value relevance of various dirty surplus accounting flows for Dutch listed firms. We find evidence that dirty surplus goodwill write-offs in particular are relevant in explaining returns and that the clean surplus earnings perform better than the reported earnings over 1-year intervals. Taken together, these 1-year interval empirical results indeed imply that the Dutch managers in the period considered wrote-off value relevant information via dirty surplus accounting flows. Over longerterm intervals, dirty surplus items are not or negatively related to returns and reported income becomes more value relevant than clean surplus income.

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Wang Y, Buijink WFJ, Eken Ra RCW. The Value Relevance of Dirty Surplus Accounting Flows in the Netherlands. Tilburg: Accounting. 2003. (CentER Discussion Paper).