The Effects of Value Relevance of Accounting Information and Financing Activities on Idiosyncratic Risk

This study examines the relationships between the value relevance of accounting information, financing activities, and idiosyncratic risk. The findings show that debt financing activities are positively related to the value relevance of earnings but equity financing activities decrease with the value relevance of earnings. Both external financing activities and equity financing activities decrease with idiosyncratic volatility, and considering the interaction between financing activities and the value relevance of earnings or cash flows, these relationships still hold. Overall, investors face lower idiosyncratic risk when a firm chooses equity financing activities. Key words: Accounting information, value relevance, idiosyncratic risk, debt financing activities, equity financing activities