Use of R-squared in Accounting Research: Measuring Changes in Value Relevance over the Last Four Decades
Abstract
This study examines the properties of the R-squared metric frequently used in accounting research as a measure of value relevance. Analytical results show that the metric is unreliable in the presence of scale effects. Specifically, we show that the metric is upwardly biased for accounting studies, and the bias is increasing in the scale factor's coefficient of variation. We conclude that it is invalid to make cross-sample comparisons of...
Paper Details
Title
Use of R-squared in Accounting Research: Measuring Changes in Value Relevance over the Last Four Decades
Published Date
Nov 24, 1998
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