A Study on the Trends of Accounting Information Usage in the Korean Stock Market

In a paper titled “The End of Accounting and the path forward for investors and managers”, Lev and Gu (2016) argued that the usefulness of accounting information has declined from 90% in the 1950s to 50% in 2013 within the US stock market. Following the work of Lev and Gu, this study attempts to examine the trends in the usefulness of accounting information in the Korean setting. The research model seeks to find out the trend in the usefulness of financial information variables such as net profit and book value on the Korean stock market. Through regression analysis, the trend in regression coefficient and explanatory power (R2) of the correlation between accounting profit and market capitalization of firms listed on the Korean stock exchange from 1980 to 1970 was analyzed. The result of the study shows that the usefulness of net profit as accounting information on the Korean stock market has decreased significantly, just as in the US, but the usefulness of firm book value has greatly increased since 2000. That is to say that investment decisions are largely based on the size of firms rather than on the net profit of firms. This study is significant because it made use of 38 years of firm data to investigate the aspects of financial information that are useful in the investment decision making process in the Korean stock market. Again, another major significance of this study is that the results differ greatly from previous studies that examined the trend in the usefulness of accounting information in Korea about 15 years ago.