The Effects of year 1999 changes in Thai accounting standards on value relevance of accounting information

Abstract

The objective of this study is to investigate the effects of year 1999 changes in Thai Accounting Standards on value relevance of accounting information. The new accounting standards introduce the new accounting items in income statement and also change the measurement criteria of some components of assets. The changes in accounting standards will have the effect on value relevance of accounting items. These accounting items are earnings, gain and loss on troubled debt restructurings (TDR), impairment loss of property, plant and equipment (PPE), impairment loss of investment in securities, unrealized gain/loss on trading securities, total assets, property, plant and equipment, investment in securities, and other assets. The method of investigation is to run the regression models, which dependent variables are stock’s returns (or stock’s prices) and independent variables are accounting items and the interaction term between the dummy variable (to partition samples into before and after the changes in accounting standards) and accounting items. The significance and signs of coefficients of interaction term between dummy variables and accounting items are used to test the effects of the changes in accounting standards. The results show that value relevance of earnings does not change after the changes in accounting standards. Impairment loss of PPE, impairment loss of investment in securities, and unrealized gain/loss on trading securities are value relevant information, while gain on TDR and loss on TDR are not value relevant information. The inclusion of impairment loss of investment in securities in income statement increases value relevance of earnings, but the inclusion of gain on TDR decreases value relevance of earnings. Loss on TDR, impairment loss of PPE and unrealized gain/loss on trading securities does not affect value relevance of earnings. Value relevance of total assets increases after the changes in accounting standards because value relevance of PPE increases, however value relevance of investment in securities and other assets does not change. Value relevance of PPE increases because the allowance for impairment which is a new accounting item is value relevant information. For the test of investment in securities, available-for-sales securities (stated at fair value) after the changes in accounting standards are value relevant information, while the marketable securities (stated at lower of cost or market) before changes in accounting standards are not value relevant information.