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An empirical assessment of proposed solutions for resolving scale problems in value relevance accounting research
Author(s) -
Aledo Martínez Juana,
García Lara Juan Manuel,
González Pérez María T.,
Grambovas Christos A.
Publication year - 2020
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12510
Subject(s) - valuation (finance) , residual income valuation , relevance (law) , computer science , empirical research , accounting information system , scale (ratio) , residual , econometrics , accounting , passive income , value (mathematics) , economics , mathematics , statistics , algorithm , machine learning , gross income , physics , tax reform , quantum mechanics , equity risk , political science , law , public economics , state income tax
We implement the most common empirical specifications, with different approaches to control for scale problems, used in studies on the value relevance of accounting information. We study whether the results offered by these specifications are consistent with the residual income valuation model and with the Burgstahler and Dichev option‐style valuation framework. Undeflated and per‐share specifications offer results that are more in line with both benchmarks. Other deflated specifications and approaches deviate, to different extents, from the expectations of both frameworks. We interpret these deviations as signs of misspecification.