Premium
Dirty surplus accounting flows and valuation errors
Author(s) -
Isidro Helena,
O’Hanlon John,
Young Steven
Publication year - 2006
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/j.1467-6281.2006.00203.x
Subject(s) - valuation (finance) , economics , economic surplus , residual income valuation , econometrics , accounting , welfare , equity risk , market economy
For France, Germany, the U.K. and the U.S. for the period from 1994 to 2001, this study explores empirically the association between valuation errors from a standard empirical application of the residual income valuation model and violations of the clean surplus relationship (dirty surplus accounting flows). Motivated by concern that the effect of dirty surplus accounting on the applicability of accounting‐based valuation models might vary across accounting regimes, the study also documents differences across pairs of countries in the relationship between valuation errors and dirty surplus flows. The study finds some weak evidence of predicted relationships between valuation errors and dirty surplus flows in the U.S., but finds little evidence of such relationships elsewhere. There is some limited evidence of cross‐country difference in the relationship between valuation errors and dirty surplus flows, mostly involving the U.S.