Value relevance of the new operating income: evaluation of the exposure draft 2019/07

Abstract

Purpose: To analyze the value relevance of the new operating result proposed by ED/2019/07 in Brazilian companies in relation to the gaap and non-gaap measure, assessing the relevance of the new operating result associated with the market value of companies. Methodology: We used economic and financial data, available at Economatica, from 149 companies from the 9 economic sectors of B3, which had the annual information necessary to carry out the study in the period from 2010 to 2019. For data analysis, we used a restatement of the current income statement, to assess the new operating income provided for in the Exposure Draft. To assess value relevance, the model by Ohlson (1995) was used, which allows evaluating the explanatory power of the R2 of the regression. Results: The results of the analyzes suggest that, for the analyzed companies, the value relevance of New Operating Income (R2=0.4439) is higher than EBITDA (R2 = 0.4321), followed by Net Income (R2 = 0.4094). Such results show that the New Operating Result has greater explanatory power for the companies' market value. So, the results corroborate the conclusions of Barton et al. (2010) in which the Operating Result and EBITDA have greater value relevance than the gaap measure and, consequently, a greater association with stock returns. Contributions of the Study: The study provides empirical evidence on the possible impacts of the new income statement, with practical implications, and on how the change in the presentation of the income statement can impact the predictability of actions. In addition to theoretical and practical contributions, as it is a future standard that, it seems, will be implemented in the coming years, this research can contribute to accounting professionals, auditors and regulatory bodies in understanding the benefits and impacts of the proposed changes.

Keywords

• new operating result; exposure draft; income statement; value relevance.