"Is Earnings of the Sluggish Industries Value-Irrelevant?" (in Japanese)

This paper investigates whether earnings of the firms, which belong to the sluggish industries under recent recession in Japan, is value relevant. It is often said that, while the relevance of earnings is recently declining, the relevance of book value of equity increases gradually. Moreover, it is sometimes claimed that book value of equity is more value relevant than earnings, especially for the unhealthy firms whose performance is very poor. However, for construction, real estate and commercial industries in Japan, earnings is consistently value relevant over all periods. We cannot find the evidence that book value of equity is more value relevant than earnings. Because earnings contains the manifold informativeness, the reported levels of earnings can only present one of them. It is insufficient to discuss the decline in relevance of earnings and to compare earnings with book value of equity without considering the information contents of earnings other than the aspect of levels. Prior literatures include the mis-specification of models in measuring the relevance of earnings. For example, by controlling for losses or negative changes with dummy variables, we can detect the higher relevance of earnings although no single regression model is effective in all cases. It is necessary to re-examine how to analyze the value relevance of earnings.