The Role of Assumptions in Ohlson Model Performance: Lessons for Improving Equity-Value Modeling

Fullana, Olga; González, Mariano; Toscano, David

doi:10.3390/math9050513

Cited by 4 publications

(1 citation statement)

References 46 publications

(66 reference statements)

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“…It is widely applied currently (e.g. Fullana et al, 2021;Kim et al, 2017;Sampson & Shi, 2020) to investigate firms' market value. We use the same model to ascertain whether the market values of firms with high (low) levels of HRE and HCVA are driven mostly by their longer-term (near-term) earnings.…”

Section: Introductionmentioning

confidence: 99%

Human Capital resource as cost or investment: A market-based analysis

Vithana

Jayasekera

Choudhry

et al. 2021

The International Journal of Human Resource Management

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This study empirically investigates the myopic behavior of the stock market toward firms' human capital resource investment, paying particular attention to two key proxies: human resource expenditure and the firm value added allocated to the employees. Focusing on human capital resource investment decisions' alignment with near versus longer-term emphasis by investors, we examine firms listed in the Financial Times Stock Exchange (FTSE) 100 over a five-year period using an established accounting-based valuation model. Our results show that human capital investment discourse leads to overweighting of the forecasted longer-term earnings in the apportionment of share price constituents, suggesting that investors consider investment in employees to generate more return in the longer-term. Additionally, our findings prove that investors respond to firm level human capital resource as an investment generating more return in the longer-term. This emphasises the importance of communicating human capital resource investment information that accurately reflects the firm value creation via employees in external financial reporting.

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Section: Introductionmentioning

confidence: 99%

Human Capital resource as cost or investment: A market-based analysis

Vithana

Jayasekera

Choudhry

et al. 2021

The International Journal of Human Resource Management

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IFRS adoption and unconditional conservatism: an accrual-based analysis

Fullana

González

Toscano

2021

IJAIM

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Purpose In this paper we analyse the effect on unconditional conservatism of the mandatory adoption of International Financial Reporting Standards (IFRS) by the European listed firms in January 2005. Under the hypothesis that accounting regulation influences the accounting conservatism, we use a non-market-based measure of unconditional conservatism – the accrual-based measure proposed by Givoly and Hayn (2000) – to test this effect, controlling for the other determinants of the unconditional conservatism found in the accounting literature. Design/methodology/approach We use a panel data of 10 years and 96 non-financial listed firms in the Spanish stock market in which the differences between local GAAP and IFRS are more important. A pre-estimation analysis of the data reveals that GLS with random effects is the correct estimation procedure. However, to try to deal with the likely endogeneity in the set of variables, the authors perform an estimate with a dynamic estimator for panels with few periods and many individuals where the independent variables are not strictly exogenous. Findings As expected, results show evidence that support a significant reduction on the unconditional conservatism of firms in the sample due to the adoption of IFRS. This evidence is relevant to equity market, debt market and corporate governance users of the financial information, and also for the policymakers who can assess the effects of their mandate. Research limitations/implications Results shown in this paper have all the limitations of system-, country-, sample- and event-specific studies but, along with many others drawn in alternative contexts, may help to correctly understand both the time-evolution and cross-sectional country differences of firms’ unconditional conservatism. Originality/value The study represents the first analysis of the effect of the adoption of IFRS on unconditional conservatism of the European listed companies using a non-market accrual-based measure. Results are not influenced by the dynamics of the stock market and, by comparison, allow us to analyse this influence in results provided by using market-based measures of the unconditional accounting conservatism provided by previous literature.

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Cluster analysis of share price: How firm characteristics relate to accounting metrics

Akpan

Dhillon

Trottier

2021

RGC

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The purpose of this paper is to improve our understanding of the relationship between share price and accounting information. Much of the literature utilizes the earnings number to reflect firm value. However, the revenue number seems more relevant for high tech firms (Xu, Cai, & Leung, 2007), and cash flow figures are more informative for internet companies (Romanova, Helms, & Takeda, 2012). We build on this notion that share price may map out to different accounting numbers for different firms. We collect 629 accounting metrics for 3,365 firms in the U.S. and estimate their correlation with the firms’ share price. We analyze these correlations and find that many firms exhibit a low correlation between share price and earnings. Other accounting numbers are important for these firms, including book value of net assets, retained earnings, stock options, gain or loss items, special or non recurring items, and dividend rates. We are curious to learn what causes firms to anchor onto different metrics, therefore perform a cluster analysis to group similar firms together along three key accounting metrics. We examine the composition of each cluster and find that capital structure, dividend patterns, the persistence of operations, age, and industry can influence which accounting number is correlated with firm value. We encourage other researchers to continue this exploration as there are many interesting questions to answer.

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The Role of Assumptions in Ohlson Model Performance: Lessons for Improving Equity-Value Modeling

Cited by 4 publications

References 46 publications

Human Capital resource as cost or investment: A market-based analysis

Human Capital resource as cost or investment: A market-based analysis

IFRS adoption and unconditional conservatism: an accrual-based analysis

Cluster analysis of share price: How firm characteristics relate to accounting metrics

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