European Differences in the Valuation of Earnings and Book Value: Regulation Effects or Industry Effects?
23 Pages Posted: 5 May 2004
Date Written: April 2004
Abstract
This paper uses a valuation framework for a sample of firms from four European countries (France, Germany, Netherlands, and United Kingdom) to examine how are their accounting income and book value of equity perceived by the respective capital markets after taking into account industry effects. The empirical model, based on Ohlson (1995), posits relationship between income, and book value of equity and market prices. In our tests we take into account the time series properties (linear information dynamics) of the accounting variables posited in the Ohlson model and, in a separate model, we test for the accrual adjustments in earnings. Consistently with previous researchers we find that both earnings and book value of equity have valuation implications, that there are significant country specific differences in the valuation multiples but the differences are substantially reduced when we take into account industry effects.
Keywords: Europe, valuation models, international accounting
JEL Classification: G12, G15, M41, M47
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Capital Markets Research in Accounting
By S.p. Kothari
-
What is the Intrinsic Value of the Dow?
By Charles M.c. Lee, James N. Myers, ...
-
Accruals and the Prediction of Future Cash Flows
By Mary E. Barth, Donald P. Cram, ...
-
By Stephen Brown, Kin Lo, ...
-
A Comparison of Dividend, Cash Flow, and Earnings Approaches to Equity Valuation
-
By Mary E. Barth, William H. Beaver, ...
-
Investor Valuation of the Abandonment Option
By Philip G. Berger, Eli Ofek, ...
-
Investor Valuation of the Abandonment Option
By Peter Berger, Eli Ofek, ...
-
Accounting Conservatism, the Quality of Earnings, and Stock Returns
By Stephen H. Penman and Xiao-jun Zhang
-
Ratio Analysis and Equity Valuation
By Doron Nissim and Stephen H. Penman