The value relevance of non-financial performance variables and accounting information : the case of the airline industry

The purpose of this research is to examine the value relevance to investors of nonfinancial performance variables, traditional accounting variables (earnings and changes in abnormal earnings) and other financial statement information in the airline industry. From analysts' written pronouncements and financial press articles, customer satisfaction, load factor, market share and available seat miles are identified as fundamental (non-financial) performance metrics used to evaluate airline performance. Consistent with prior capital markets research, earnings and changes in abnormal earnings represent traditional accounting information. In addition, because financial statements include details such as revenues, gross profit, assets, etc., a search of these metrics is conducted to construct financial statement proxies that reflect value relevance that is similar to that of non-financial performance metrics. Non-financial performance variables, traditional accounting variables and financial statement proxies are examined on a stand-alone basis and in a combined model. The findings of stand-alone panel data regressions suggest that accounting earnings, changes in abnormal earnings and non-financial performance variables are significantly associated with stock returns. When non-financial performance metrics, earnings and changes in abnormal accounting earnings are included in the same model, non-financial performance variables exhibit incremental value relevance over traditional accounting metrics. Finally, although the financial statement proxies are highly correlated with the non-financial performance metrics, with the exception of the load factor proxy, the financial statement proxies were generally not associated with stock returns.