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Equity Valuation (equity + valuation)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Earnings and Equity Valuation in the Biotech Industry: Theory and Evidence

FINANCIAL MANAGEMENT, Issue 3 2008
Philip Joos
We examine how the price-earnings relation varies with the uncertainty about and the quality of a firm's investments. We develop a real option valuation framework to capture investment and abandonment options in the research-intensive biotechnology industry. We hypothesize that the price-earnings relation will be V-shaped and change over the firm's life cycle. We also show how nonfinancial information affects the pricing of earnings. Our empirical findings are based on a sample of 301 biotechnology firms that made IPOs between 1980 and 2000, and are generally consistent with our predictions. [source]

Accruals Management, Investor Sophistication, and Equity Valuation: Evidence from 10,Q Filings

JOURNAL OF ACCOUNTING RESEARCH, Issue 4 2002
Steven Balsam
The release of the full set of financial statements in Form 10,Q provides investors with the data necessary to estimate the discretionary portion of earnings, thereby allowing them to better assess the integrity of reported quarterly earnings. We thus expect a negative association between unexpected discretionary accruals estimated using 10,Q disclosures and stock returns around 10,Q filing dates. Consistent with our expectations, we document a negative association between unexpected discretionary accruals and cumulative abnormal returns over a short window around the 10,Q filing date. Furthermore, this association varies systematically with investor sophistication. Finally, results from portfolio tests indicate that this association is economically as well as statistically significant. One interpretation of our findings is that accruals management has substantial valuation consequences, which are quickly impounded into stock prices. [source]

Implications of Components of Income Excluded from Pro Forma Earnings for Future Profitability and Equity Valuation

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 3-4 2007
Wayne R. Landsman
Abstract:, This study addresses three research questions relating to total exclusions, special items, and other exclusions. Are each of these pro forma exclusion components forecasting irrelevant? Are each of the exclusion components value irrelevant? Are the valuation multiples on the exclusion components justified by their ability to forecast future profitability as predicted by the Ohlson (1999) model? Findings are generally consistent with the market-inefficiency results presented in Doyle et al. (2003). Total exclusions are valued negatively by the market despite the prediction that total exclusions will be valued positively. Valuation results also suggest that stocks with positive other exclusions are overpriced. [source]

Equity Valuation and Current Cost Disclosures: the Case of Mexico

JOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 3 2001
Paquita Y. Davis-Friday
This study uses an accounting-based valuation model to investigate the relation between the market value of publicly traded Mexican firms and their disclosures of price-level adjusted accounting information. The model is estimated on a sample of Mexican companies during 1987,1990, when annual inflation rates in Mexico decreased from 130 per cent to 20 per cent. The results indicate that general price level-adjusted and current cost disclosures explain a significant portion of the cross-sectional variation in the market-to-book ratios of the sample firms. Further, the explanatory power of holding gains is robust to decreases in the general level of inflation, which suggests that current cost and constant peso disclosures are relevant for determining firm value over a wide range of inflation rates. These results are particularly important now since the Mexican Institute of CPAs has proposed eliminating the measurement of holding gains in order to make Mexican financial statements more comparable to US and Canadian GAAP. [source]

Residual income, non-earnings information, and information content

JOURNAL OF FORECASTING, Issue 6 2009
Ruey S. Tsay
Abstract We extend Ohlson's (1995) model and examine the relationship between returns and residual income that incorporate analysts' earnings forecasts and other non-earnings information variables in the balance sheet, namely default probability and agency cost of a debt covenant contract. We further divide the sample based on bankruptcy (agency) costs, earnings components and growth opportunities of a firm to explore how these factors affect the returns,residual income link. We find that the relative predictive ability for contemporaneous stock price by considering other earnings and non-earnings information is better than that of models without non-earnings information. If the bankruptcy (agency) cost of a firm is higher, its information role in the firm's equity valuation becomes more important and the accuracy of price prediction is therefore higher. As for non-earnings information, if bankruptcy (agency) cost is lower, the information role becomes more relevant, and the earnings response coefficient is hence higher. Moreover, the decomposition of unexpected residual income into permanent and transitory components induces more information than that of the unexpected residual income alone. The permanent component has a larger impact than the transitory component in explaining abnormal returns. The market and industry properties and growth opportunity also have incremental explanatory power in valuation. Copyright © 2008 John Wiley & Sons, Ltd. [source]