CIRJE-J-101. Obinata, Takashi, "Value Relevance of Earnings in Energy Industry", December 2003.

This paper investigates the value relevance of earnings in the electricity, gas and petroleum (refining) industries. Although these industries belong to the same category, i.e. energy industry, the value relevance of earnings differs in industries and periods. Their relevance is determined by the business cycle, the competitive condition and the regulation climate in each industry. The major findings in this paper are as follows. First, the industrial and regulation policy affect the relevance of earnings in energy industry. However, the recent progress of deregulation and liberalization do not diminish the value relevance of earnings. Second, while the quality of earnings is influenced by the exchange rate and the price of imported crude oil, its influence varies by industries and by periods. However, we cannot find the evidence that the cost adjustment system in public utilities improves the quality of earnings. Third, the quality of earnings is lower for the firms whose profitability is poorer than the average in manufacturing firms. This result implies that the value relevance of rate regulated industries is evaluated in the market, by the comparison of the profitability between industrial firms.