Have IFRS Changed How Stock Prices Associate with Earnings and Book Values? Evidence from Norway

Firms listed on European, Australian and an increasing number of other stock exchanges are required to report according to International Financial Reporting Standards (IFRS). We use a Norwegian sample to examine whether the adoption of IFRS in 2005 has changed the value relevance of earnings relative to book values. IFRS are balance sheet-oriented and emphasize measurement at fair value. In contrast, Norwegian GAAP (NGAAP) are earnings-oriented and focus on measurement at transactional (historical) cost. IFRS also differ by recognizing more intangible assets, which further contributes to making IFRS less conservative than NGAAP. We find that more fair value accounting increases the value relevance of book values and decreases the value relevance of earnings. However, improved matching of expenditures on intangible assets with their future economic benefits increases the persistence of earnings and the value relevance of earnings relative to book values