The traditional accounting indicators: relevance to explain the firm value in the context of the new economy. The brazilian case

Resumen

We live in the era of the new economy, characterized by the great importance of intangible assets to the detriment of the traditional physical assets. This brings a big challenge to accounting, since the accounting standard is very conservative and almost does not allow the recognition of these intangibles. Besides the fact that the standard is very conservative, the measurement and the disclosure of the intangibles are not easy. The effect of the big distance between the market value of shares and their book value is well-known. Thus many authors advocate changes in the rule in order to incorporate these new kinds of assets in financial statements (Elliot and Jacobson, 1991; Guthrie, 2000; Sengupta, 1998). If this is so, current accounting is losing relevance as reliable information to its users, particularly in the capital market. This paper tries to check whether this is really happening in the Brazilian market. Thus, it discusses the stock price as a function of two important traditional accounting indicators: the earnings per share and the book value per share, using Ohlson’s (1995) model, in a period of 22 years, between 1987 and 2008. The results, however, against the expectation of many authors, do not show a loss of relevance of the traditional accounting indicators. Instead, there is an increase in the explanatory power of the variable earning per share as an explanation of the stock prices in the Brazilian market.

Key words: traditional accounting indicators, new economy, stock prices.