Impact of Earnings Sustainability and Economic Conditions on Value Relevance of Accounting Information

This study demonstrates the impact of earnings sustainability and economic conditions on value relevance of accounting information. The study method is quasi-experimental and the sample consists of firms listed in the Tehran Stock Exchange during the period from 2005 to 2014. Factors investigated in this study include relationship between market value and book value, earnings per share, sustainable earnings per share, unsustainable earnings per share and economic conditions. In this research, the sample firms that are likely to capitalize a large portion of their investments in valuable resource are referred as traditional and the firms that must expense most of their investments in valuable resources as referred as non-traditional. Results show that separating earnings into sustainable earnings and unsustainable earnings in both traditional and non-traditional firms have positive effects on the value relevance of accounting information and sustainable earnings are more effective on share price than unsustainable earnings. Also, in years with more investment opportunities, the value relevance of the accounting information is negatively associated with the level of investment and there is no significant relation between the value relevance of the accounting information and growth expectation.