Value Relevance of Earnings and Book Values in the Indonesian Economic Sectors

Recent changes in the economic conditions have cast doubt upon the reliability of the historical-based financial statements as a relevant source of information for firm valuations. This study is primarily aimed at examining whether financial statements are indeed less useful in valuing firms that heavily rely on intangibles by regressing book value and earnings as proxies of financial statement and share price as a proxy of firm value using Ohlson (1995) model. Samples used in this data are publicly listed firms in Jakarta Stock Exchange from 1994–2014. Sample firms are grouped according to their respective economic sectors as well as time periods. The findings of this research are, in addition to earnings and book value being statistically significant in most cases and the joint value relevance of the two variables appear to increase over the sample years, value relevance is indeed the lowest in the service-oriented tertiary sector, and highest in the manufacture and industrial-oriented secondary sector.