Earnings Components Accounting Conservatism And Equity Valuation PDF Download
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Author | : Peter F. Pope |
Publisher | : |
Total Pages | : 35 |
Release | : 2009 |
Genre | : |
ISBN | : |
Download Earnings Components, Accounting Conservatism and Equity Valuation Book in PDF, ePub and Kindle
In this paper we address three issues in accounting-based equity valuation: (i) How are valuation parameters related to earnings persistence and accounting conservatism when earnings components aggregate, or add up, in valuation? (ii) What does aggregation of earnings components in valuation imply for abnormal earnings dynamics? and (iii) When is an earnings component irrelevant and core earnings the relevant construct for valuation? Assuming linear valuation, no-arbitrage, dividend irrelevance and clean surplus accounting, we show that when earnings components aggregate, valuation expressions and abnormal earnings dynamics are generalizations of the Ohlson (1995) model, incorporating simple adjustments for accounting conservatism. When core earnings is the relevant earnings construct, valuation expressions closely resemble the aggregation case, but core (abnormal) earnings replaces clean surplus (abnormal) earnings. We demonstrate that an earnings component can be irrelevant in valuation even when it is predictable.
Author | : Richard P. Brief |
Publisher | : Routledge |
Total Pages | : 324 |
Release | : 2013-09-13 |
Genre | : Business & Economics |
ISBN | : 113560942X |
Download Clean Surplus Book in PDF, ePub and Kindle
First published in 1996. The relationship between the present discounted value of future cash flows and discounted excess earnings should be viewed as a mathematical property of a double-entry book[1]keeping system based on clean surplus. The purpose of this anthology is to facilitate future research by highlighting these historical developments and by showing how more recent theoretical and empirical research fits into the earlier history. The book is divided into four sections: historical overview; analytical properties of clean surplus; the theory of the clean surplus equation; and empirical implications.
Author | : David J. Ashton |
Publisher | : |
Total Pages | : 32 |
Release | : 2009 |
Genre | : |
ISBN | : |
Download Valuation Weights and Accounting Conservatism Book in PDF, ePub and Kindle
In this paper we develop a general framework for evaluating the impact of conservative accounting on the structure of residual income models of equity valuation. This affords a theoretical understanding of the signs and sizes of the valuation weights observed in regression studies of the relationship between prices, book values, earnings and dividends. We proceed to generalize our model of conservatism and are able to show theoretically the likely numerical impact of conservatism on book values, price-earnings ratios and under valuations produced by residual income models. The analysis also affords an understanding of the limitations of empirical investigations of conservatism using linear information dynamics and hence to explain the failure of many such studies to detect conservatism.
Author | : D. Eric Hirst |
Publisher | : Wiley |
Total Pages | : 80 |
Release | : 2000-11-28 |
Genre | : Business & Economics |
ISBN | : 9780943205496 |
Download Earnings Book in PDF, ePub and Kindle
Hirst and Hopkins guide analysts to a comprehension of how income statements and other disclosures can be used to assess the underlying quality and persistence of companies' economic conditions.
Author | : Jennifer Francis |
Publisher | : Now Publishers Inc |
Total Pages | : 97 |
Release | : 2008 |
Genre | : Business & Economics |
ISBN | : 1601981147 |
Download Earnings Quality Book in PDF, ePub and Kindle
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Author | : Xiaojun Zhang |
Publisher | : |
Total Pages | : 256 |
Release | : 1998 |
Genre | : |
ISBN | : |
Download Earnings Forecasting and Equity Valuation Under Conservative Accounting Book in PDF, ePub and Kindle
Author | : Pengguo Wang |
Publisher | : |
Total Pages | : |
Release | : 2015 |
Genre | : |
ISBN | : |
Download Conservatism in Residual Income Models Book in PDF, ePub and Kindle
In this paper, we develop a framework for evaluating the impact of conservative accounting on the structure of residual income models of equity valuation. We explore specific examples of both unconditional and conditional conservatism and observe a common mathematical structure. We proceed to generalise our model and identify the joint dependency of conservatism and the persistence of abnormal earnings on the weights attached to book values, earnings and dividends. We are able to show theoretically the likely numerical impact of conservatism on price-earnings ratios and under valuations produced by residual income models. We investigate empirically the interaction between conservatism and persistence and find they accord well with the theory developed. We briefly discuss the implications for testing of the effect of conservatism on valuation and linear information dynamics.
Author | : Andreas A. Charitou |
Publisher | : |
Total Pages | : 50 |
Release | : 1986 |
Genre | : |
ISBN | : |
Download Valuation of Earnings and Cash Flows and Their Components Book in PDF, ePub and Kindle
Author | : Stephen H. Penman |
Publisher | : |
Total Pages | : 754 |
Release | : 2010 |
Genre | : Financial statements |
ISBN | : 9780071267809 |
Download Financial Statement Analysis and Security Valuation Book in PDF, ePub and Kindle
Valuation is at the heart of investing. A considerable part of the information for valuation is in the financial statements.Financial Statement Analysis and Security Valuation, 5 e by Stephen Penman shows students how to extract information from financial statements and use that data to value firms. The 5th edition shows how to handle the accounting in financial statements and use the financial statements as a lens to view a business and assess the value it generates.
Author | : Guochang Zhang |
Publisher | : |
Total Pages | : 39 |
Release | : 2001 |
Genre | : |
ISBN | : |
Download Accounting Information, Capital Investment Decisions, and Equity Valuation Book in PDF, ePub and Kindle
This study develops an accounting-based valuation model in a setting where firms have the flexibility to expand or discontinue operations (real options). The model is used to examine the role of accounting earnings and book value in equity valuation and to explore cross-sectional differences in the behavior of the valuation function. Unlike prior studies (such as Ohlson 1995 and Feltham and Ohlson 1995) where capital investments are either unspecified or exogenously given, capital investment decisions in this model are made contingent on the firm's operating profitability and growth opportunities. Valuation requires first forming beliefs about future capital investments, and then valuing cash flows to be generated from invested assets. Current earnings and book value provide vital information both for forming beliefs about future investments and for forecasting cash flows. With real options, the valuation function emerges as convex, not linear. Specifically, equity value is an increasing and convex function of earnings, for any given book value, but it can be either increasing in, insensitive to, or decreasing in book value, depending on the firm's profitability and growth opportunity. The model leads to predictions regarding the relative importance of earnings versus book value in value determination and how this relative importance varies across firms. It also rationalizes the quot;anomalousquot; association between stock prices and negative earnings found in empirical studies (which is due to regression model misspecification). The study further shows how conservative accounting affects the characteristics of earnings and book value, and provides hypotheses regarding how accounting conservatism influences the properties of the valuation function. The predictions of the model are generally consistent with the evidence reported in empirical studies. Implications for empirical research are discussed.