scholarly journals Valuation properties of accounting numbers in Brazil

2004 ◽  
Vol 1 (3) ◽  
pp. 31-36
Author(s):  
Alexsandro Broedel Lopes
Keyword(s):  
Stock Exchange ◽  
Residual Income ◽  
Net Income ◽  
Book Value ◽  
Residual Income Model ◽  
Significant Difference ◽  
Accounting Numbers ◽  
Dividend Distribution ◽  
Comparable Performance ◽  
Income Model

This work investigates the valuation properties of accounting numbers in Brazil under three traditional frameworks: earnings capitalization, book value of equity and residual income. The sample was selected from companies traded at the São Paulo Stock Exchange (BOVESPA) from 1995 to 1999, dividing the sample in two groups: companies with preferred and with common shares. My results show that the earnings capitalization model did not perform well for common shares and have a better performance for preferred shares because of the mandatory dividend distribution as a percentage of net income in Brazil and because earnings have no use as information asymmetry reducers in Brazil. The book value model performed better for common shares while residual income had a comparable performance and seems to be the dominant accounting-based valuation model for common shares. For preferred shares the residual income model performs better. The residual income term alone presents no significant difference for the two sets of companies. For both set of companies accounting income did not incorporated economic income.

Macroeconomic Factors and Company Value in the Context of the Ohlson Residual Income Valuation Model

2013 ◽  
Vol 2 (2) ◽  
pp. 1-11
Author(s):  
Konstantinos Vergos ◽  
Apostolos G. Christopoulos ◽  
Vasilios Kalogirou
Keyword(s):  
Stock Exchange ◽  
Explanatory Power ◽  
Commodity Prices ◽  
Residual Income ◽  
Macroeconomic Factors ◽  
Explanatory Variables ◽  
Residual Income Model ◽  
Residual Income Valuation ◽  
Income Model ◽  
Athens Stock Exchange

Over the past decades the Ohlson Residual Income Model for equity valuation has drawn much attention concerning its advantages when compared to traditional models (DDM, FCFM). This paper attempts to empirically investigate the validity of the Ohlson Residual Income model using data from the Greek economy over the period 1969-2001. By using multiple regression analysis and by incorporating macroeconomic factors as explanatory variables, we investigate the link of accounting and macroeconomic factors in the market valuation of major Greek companies listed in the Athens Stock exchange. We find that the performance of the Ohlson Residual Income Model is quite satisfactory and the use of factors such as commodity prices, discount rates, and market level in some cases add to the explanatory power of the examined model. Our findings are important for both economists and fund managers, because they show that a relation between accounting and macroeconomic data is valid in the Greek market and economy, alongside more developed markets.

Implementing Residual Income Valuation With Linear Information Dynamics

1999 ◽  
Vol 74 (1) ◽  
pp. 1-28 ◽  
Author(s):  
James N. Myers
Keyword(s):  
Time Series ◽  
Firm Value ◽  
Residual Income ◽  
Accounting System ◽  
Information Dynamics ◽  
No Arbitrage ◽  
Book Value ◽  
Residual Income Valuation ◽  
Accounting Numbers ◽  
Linear Information

Residual income (RI) valuation is a method of estimating firm value based on expected future accounting numbers. This study documents the necessity of using linear information models (LIMs) of the time series of accounting numbers in valuation. I find that recent studies that make ad hoc modifications to the LIMs contain internal inconsistencies and violate the no arbitrage assumption. I outline a method for modifying the LIMs while preserving internal consistency. I also find that when estimated as a time series, the LIMs of Ohlson (1995), and Feltham and Ohlson (1995) provide value estimates no better than book value alone. By comparing the implied price coefficients to coefficients from a price level regression, I find that the models imply inefficient weightings on the accounting numbers. Furthermore, the median conservatism parameter of Feltham and Ohlson (1995) is significantly negative, contrary to the model's prediction, for even the most conservative firms. To explain these failures, I estimate a LIM from a more carefully modeled accounting system that provides two parameters of conservatism (the income parameter and the book value parameter). However, this model also fails to capture the true stochastic relationship among accounting variables. More complex models tend to provide noisier estimates of firm value than more parsimonious models.

scholarly journals Bank Valuation Models – A Comparative Analysis

2017 ◽  
Vol 6 (3) ◽  
pp. 116
Author(s):  
Chitra Gunshekhar Gounder ◽  
M. Venkateshwarlu
Keyword(s):  
Public Sector ◽  
Private Sector ◽  
Value Creation ◽  
Shareholder Value ◽  
Market Price ◽  
Residual Income ◽  
Valuation Model ◽  
Residual Income Model ◽  
Income Model ◽  
Relative Valuation

The Bank valuation model was designed based on objective to fit  the most  applicable  valuation model for banks to help in forecasting bank specific decision and also forecast the market value of share. First study the accuracy and explanatory value of the value estimates from the residual income model compared to the estimates from the Relative valuation model for banks. Empirical evidence suggests that the residual income model is superior to the relative valuation model when it comes to measuring bank shareholder value. The results of the comparison suggest that value estimates from the residual income model are even more reliable for banks. On this basis, we conclude that residual income is an appropriate value estimate for the shareholder value of banks. There was positive significant relationship identified between the intrinsic value of bank share determined by RIV model and Market price of share in all the cases by performing correlation and Regression study. This study will be useful for forecasting the possible changes in market price. It was identified that determinants vary as per the working and regulatory condition as determinants impacting private, public and Indian banks were not similar so panel regression model will vary for each cases. It was also identified that Public Sector Bank in India shows more positive progressive trend as compared to private Sector Bank even after the fact that public Sector Bank has higher regulatory restriction as compared to Private Sector banks. This research will serve very useful for the banker to plan and take decision regarding shareholder value creation by implementing proper valuation model for getting appropriate value estimate and also adopting proper internal performance measure for having accurate and regular check on the process of value creation. 

Do combining value estimates increase valuation accuracy? Evidence from Indian chemical industry

2015 ◽  
Vol 5 (2) ◽  
pp. 170-183 ◽  
Author(s):  
Ranjit Tiwari ◽  
Harish Kumar Singla
Keyword(s):  
Cash Flow ◽  
Chemical Industry ◽  
Residual Income ◽  
Annual Data ◽  
Discounted Cash Flow ◽  
Content Type ◽  
Market Values ◽  
Valuation Model ◽  
Residual Income Model ◽  
Income Model

Purpose – Being a developing nation with huge opportunity of growth prospects the assessment of valuation models becomes important to have a more realistic value estimate. The purpose of this paper is to empirically examine the comparative accuracy and explanatory performance of discounted cash flow (DCF) and residual income model (RIM) valuation models for the Indian chemical industry and come up with a composite valuation model. Design/methodology/approach – To achieve the objective of the study the authors first determine the intrinsic values using both the models. Comparisons of the models are based on prediction errors and the explanatory performance of market value on value estimates. The study uses panel regression to forecast estimates of earnings and measure explanatory performance. The authors examine the ability of the value estimates to explain cross-sectional variation in the observed market values. The study also uses GMM method for deriving robust estimators. Variables for the study are collected from the CMIE’s prowess data base (release 4). The authors consider all 1,075 BSE listed chemical companies for the purpose of the study. The study uses annual data points starting from 31 March 2002 to 31 March 2011. Findings – The comparative framework shows that both Residual Income model and Composite Valuation model are superior to Discounted cash flow model and are equally likely. But since composite value estimates considers all bonafide informations of individual models, the estimates of Composite Valuation model becomes more reliable. Research limitations/implications – The study only compares and combines the two most widely used valuation models around the world. Future studies can be conducted using the third widely used valuation models, i.e. multiples and see the level of accuracy of individuals as well as the composite model. Originality/value – As a concern very few research has been conducted in this area in India. This paper provides practitioners with a snapshot of the applicability of DCF and RIM valuation models. And also shows how a composite value estimate can improve accuracy.

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