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This study provide empirical evidence that the differential impact of investor sentiment on value relevance of accounting components, in particular book value and net incomes which have different economic implication. It takes into account the possibility that the tendency of investors to rely on certain information will give greater weights to information which is consistent with their sentiment. Unlike prior accounting studies which measured investor sentiment index at the market-wide level, this study measured investor sentiment at the individual firm level, considering that investor sentiment varies with each firms, even at the same period. Using a cross-section of companies listed KOSPI stock market spanning 2011 - 2017, we find that net income is more value relevant in high sentiment firms relative to low sentiment firms, while book value is more relevant in low sentiment firms relative to high sentiment firms. In low sentiment, these results are consistent with investors placing a greater weight upon book value, which shows accounting information of current valuation. In high sentiment, investors placing a greater weight upon net income, which shows accounting signal of firms’ future performance.
