Accounting Quality and Long Term Shareholder Value Creation

Abstract

This research introduces a novel methodological framework for examining the relationship between accounting quality and long-term shareholder value creation, departing from traditional econometric approaches by integrating principles from complex
systems theory and computational linguistics. We conceptualize financial reporting
not as a static informational input but as a dynamic signaling system within corporate
ecosystems, where accounting quality functions as a coherence mechanism between
managerial actions, market perceptions, and fundamental value. Our methodology
employs a multi-agent simulation model that represents heterogeneous market participants with varying information processing capabilities, coupled with a text analysis
component that evaluates narrative disclosures using entropy-based measures of informational content. We formulate three unconventional research questions: (1) How does
the fractal dimensionality of accounting information flows influence value persistence
across different market regimes? (2) What is the role of disclosure narrative complexity
in moderating the relationship between accounting precision and long-term value creation? (3) How do emergent properties in investor interpretation networks affect the
translation of accounting quality into shareholder returns? Our simulation results, derived from 50,000 firm-period observations generated through our agent-based model,
reveal several counterintuitive findings. First, we identify a non-monotonic relationship
between accounting precision and long-term value creation, with optimal value accrual
occurring at intermediate levels of precision rather than maximal precision, challenging conventional wisdom. Second, we demonstrate that moderate narrative complexity
in disclosures enhances the value relevance of accounting information, while both excessive simplicity and complexity degrade it. Third, we find that network effects in
investor interpretation create path dependencies where early consensus on accounting
quality can become self-reinforcing, decoupling from underlying fundamentals. These
findings contribute original insights to accounting, finance, and information economics
by reconceptualizing accounting quality as a systemic property rather than an attribute
of individual reports, with implications for standard-setting, corporate disclosure prac
tices, and investment strategies focused on long-term value creation.