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Author: Julia Nasev
Publisher: Springer Science & Business Media
ISBN: 3834984582
Category : Business & Economics
Languages : en
Pages : 129
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Book Description
Julia Nasev examines the impact of conservative accounting numbers on valuation estimates and on real economic decisions such as cost stickiness.
Author: Julia Nasev
Publisher: Springer Science & Business Media
ISBN: 3834984582
Category : Business & Economics
Languages : en
Pages : 129
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Book Description
Julia Nasev examines the impact of conservative accounting numbers on valuation estimates and on real economic decisions such as cost stickiness.
Author: Jae B. Kim
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
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Book Description
We examine whether financial analysts understand the valuation implications of unconditional accounting conservatism when forecasting target prices. While accounting conservatism affects reported earnings, conservatism per se does not have an effect on the present value of future cash flows. We examine whether analysts adjust for the effect of conservatism included in their earnings forecasts when using these forecasts to estimate target prices. We find that signed target price errors (actual minus forecast) have a significant positive association with the degree of conservatism in forward earnings, suggesting that target prices are biased due to accounting conservatism. Cross-sectional analysis suggests that more sophisticated analysts and superior long-term forecasters adjust for conservatism to a greater extent than other analysts. In additional analyses, we explore the mechanism through which conservatism leads to bias in target prices. We first show that analysts' earnings forecasts are negatively associated with the degree of conservatism, i.e., analysts include the effect of unconditional conservatism in their earnings forecasts. Based on alternative earnings-based valuation models that analysts may use, our evidence suggests that analysts fail to appropriately adjust their valuation multiple for the effect of conservatism included in their earnings forecasts when using these forecasts to derive target prices. As a consequence, we find that, for extreme changes in conservatism, the bias in analysts' target prices due to conservatism leads to a distortion of market prices. The evidence highlights the concern that analysts may not appreciate the valuation implications of conservative accounting which could inhibit price discovery.
Author: Yonpae Park
Publisher:
ISBN:
Category :
Languages : en
Pages : 248
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Book Description
Author: Stephen H. Penman
Publisher:
ISBN: 9780071267809
Category : Financial statements
Languages : en
Pages : 754
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Book Description
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: Jing Li
Publisher:
ISBN:
Category : Banks and banking
Languages : en
Pages : 138
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Book Description
Author: James Harris Bliss
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 880
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Book Description
Author: Kenneth MacNeal
Publisher: University of Pennsylvania Press
ISBN: 1512804045
Category : Business & Economics
Languages : en
Pages : 352
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Book Description
This book is a volume in the Penn Press Anniversary Collection. To mark its 125th anniversary in 2015, the University of Pennsylvania Press rereleased more than 1,100 titles from Penn Press's distinguished backlist from 1899-1999 that had fallen out of print. Spanning an entire century, the Anniversary Collection offers peer-reviewed scholarship in a wide range of subject areas.
Author: Pengguo Wang
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
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: Giorgio Gotti
Publisher:
ISBN:
Category :
Languages : en
Pages : 80
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Book Description
Accounting standards mandate different, more conservative, rules for the recognition of unrealized gains than unrealized losses in reported earnings. Conditional conservatism, defined as asymmetric timeliness in the recognition of unrealized losses vs. gains in reported earnings has, since its origins, been a peculiar characteristic of the accounting system. Understanding conservatism's role, its determinants, and its variations across firms is important for interpreting the nature, purposes, and valuation implications of accounting. Basu (1995; 1997) proposed a model to detect accounting conditional conservatism and provided empirical evidence that bad news is recognized more quickly than good news in earnings for a sample over the period 1963-1991. Following his seminal work1, accounting literature adopted the Basu single-period model to measure conditional conservatism (Ball et al. 2000; Ball et al. 2005; Ball and Shivakumar 2005; Lobo and Zhou 2006). However, Basu's proxy for measuring the arrival of good/bad news, the price of the firm's stock, may be influenced, in part, by factors that will never be recorded in a firm's reported earnings. This introduces inaccuracy in the measure of conditional conservatism. To address the problems, I introduce a new measure of conditional conservatism, which results from a Least Absolute Deviation (LAD) piecewise regression and adopts the number of changes in financial analysts' EPS forecasts as a proxy for good/bad news. Then, I use this new measure to test the determinants, suggested by previous literature, of conditional conservatism in accounting. Results show that companies with (1) lower debt-to-assets ratio, (2) large proportion of executives' annual compensation independent of the firm's accounting performance, (3) one of the big 4/big 7 audit firms as auditor, and a auditor opinion qualified with a going concern assumption the previous year exhibit a greater timeliness in the recognition of bad news than good news in annual earnings.
Author: Jennifer Francis
Publisher: Now Publishers Inc
ISBN: 1601981147
Category : Business & Economics
Languages : en
Pages : 97
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Book Description
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.
