| Summary: | Thesis (Ph.D.)--Boston University === This study investigates the differential role of investor sentiment on the value
relevance of book value versus earnings. I predict and find that the value relevance of
book value is higher during low sentiment relative to high sentiment periods, and
conversely that the value relevance of earnings is higher during high sentiment relative to low sentiment periods. These findings are consistent with investors-when
optimistic-placing a higher weight on earnings, which represent an accounting proxy
more indicative of future performance, whereas investors-when pessimistic-placing a
higher weight on book value, which represents an accounting proxy (given historical cost
conventions) that is more indicative of current value. Additional analyses suggest that
this sentiment effect is more pronounced for book value components that are closely
related to abandonment value, and for earnings components that have strong indication of
future earnings (specifically, permanent earnings). Results are also robust to alternative
measures of investor sentiment.
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