Open AccessValuation properties of accounting numbers in Brazil
Author(s) -
Alexsandro Broedel Lopes
Publication year - 2004
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv1i3p3
Subject(s) - residual income valuation , passive income , valuation (finance) , earnings per share , equity (law) , net income , capitalization , earnings , accounting , dividend , stock exchange , business , book value , sample (material) , economics , econometrics , finance , gross income , equity capital markets , public economics , linguistics , philosophy , chemistry , tax reform , chromatography , political science , law , state income tax
This work investigates the valuation properties of accounting numbers in Brazil under three traditional frameworks: earnings capitalization, book value of equity and residual income. The sample was selected from companies traded at the São Paulo Stock Exchange (BOVESPA) from 1995 to 1999, dividing the sample in two groups: companies with preferred and with common shares. My results show that the earnings capitalization model did not perform well for common shares and have a better performance for preferred shares because of the mandatory dividend distribution as a percentage of net income in Brazil and because earnings have no use as information asymmetry reducers in Brazil. The book value model performed better for common shares while residual income had a comparable performance and seems to be the dominant accounting-based valuation model for common shares. For preferred shares the residual income model performs better. The residual income term alone presents no significant difference for the two sets of companies. For both set of companies accounting income did not incorporated economic income.