The relationship between competitive advantage and the value relevance of accounting information

Abstract

This study examines the relationship between competitive advantage and the value relevance of accounting information. The advantage that a firm has over its competitors can be defined as its relative efficiency in transforming the performance of key success factors into the firm’s profitability. We classify firm-year observations into lifecycle stages and measure the efficiency using data envelopment analysis (DEA) in each of the different lifecycle stages. Our results indicate that the efficiency has a positive relationship with the stock price of a firm and decreases (or increases) the value relevance of book value per share (BPS) (or earnings per share (EPS)). The current study captures a firm’s competitive advantage by a single efficiency score and reveals that the efficiency has a positive impact on firm value. Copyright © 2018 Inderscience Enterprises Ltd.