While there is scarce empirical research on the relationship between valuation and stewardship uses of accounting information, existing studies on the basis of US data show a positive relationship. Motivated by recent analytical literature which suggests a context-specific relationship, our study analyzes the relationship between valuation and stewardship uses in a non-US-setting, using data from German listed firms from 2006 to 2015. In line with prior US studies, we find a positive relationship for Chief Executive Officer (CEO) compensation in univariate analyses. However, the relationship does not remain positive when considering firms’ extent of free float in multivariate analyses, which suggests that firms’ governance structures affect the relationship. For non-CEO management board members’ compensation, we find no significant valuation/stewardship relationship in univariate and multivariate analyses. This finding might reflect differences in managerial characteristics, such as risk aversion, between CEOs and non-CEO board members. Highlighting the role of firm and managerial characteristics, our study offers more nuanced empirical insights into the relationship of valuation and stewardship uses. Our findings also raise doubts on whether the normative statement that valuation encompasses stewardship usefulness made by the International Accounting Standards Board (IASB) in its recent conceptual frameworks has empirical substance.

Introduction

Accounting information has multiple uses. In particular, for listed firms the use of financial reporting information in informing current and potential shareholders’ investment decisions (valuation usefulness) and its use in providing incentives for and measuring the performance of employed managers (stewardship usefulness) are repeatedly analyzed in the accounting literature. maintain that “it is widely accepted that reported earnings play a fundamental role in both determining stock prices, and in evaluating and compensating executives. However, the relationship between the governance and value relevance of earnings is not well understood.” Most of the existing literature has focused on analyzing each use of accounting information separately, while far less research exists on the interplay between the twouses. Along this line, note that ‘‘there is a surprising dearth of … capital market research on the nature of, and the relationship between, stewardship and decision-usefulness.”