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Article
Publication date: 15 February 2016

Yiming Hu, Xinmin Tian and Zhiyong Zhu

In capital market, share prices of listed companies generally respond to accounting information. In 1995, Ohlson proposed a share valuation model based on two accounting…

Abstract

Purpose

In capital market, share prices of listed companies generally respond to accounting information. In 1995, Ohlson proposed a share valuation model based on two accounting indicators: company residual income and book value of net asset. In 2000, Zhang introduced the thought of option pricing and developed a new accounting valuation model. The purpose of this paper is to investigate the valuation deviation and the influence of some market transaction characteristics on pricing models.

Design/methodology/approach

The authors use listed companies from 1999 to 2013 as samples, and conduct comparative analysis with multiple regression.

Findings

The main findings are: first, the accounting valuation model is applicable to the capital market as a whole, and its pricing effect increases as years go by; second, in the environment of out capital market, the maturity of investors is one of important factors that causes the information content of residual income less than that of profit per share and lower pricing effect of valuation models; third, when the price earning (PE) of listed companies reaches certain level, the overall explanation capacity of accounting valuation models will become lower as PE gets higher; fourth, as for companies with higher turnover rate and more active transaction, the pricing effect of accounting valuation model is obviously lower; fifth, the pricing effect of accounting valuation models in a bull market is lower than in a bear market.

Originality/value

These findings establish connection between accounting valuation and market transaction characteristics providing an explorable orientation for the future development of accounting valuation theories and models.

Details

China Finance Review International, vol. 6 no. 1
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 1 January 2003

Leonard C. Soffer

I show that the common residual income model assumption that return on equity approaches zero in the long run as competitive advantage dissipates is incorrect. This…

Abstract

I show that the common residual income model assumption that return on equity approaches zero in the long run as competitive advantage dissipates is incorrect. This erroneous assumption comes from the common misinterpretation of the spread between return on equity and the cost of equity as a measure of economic profit. I also show that an unbiased accounting system (Feltham and Ohlson, 1995), which would make such an interpretation acceptable, is unlikely to exist in actual financial statements. Finally, I argue that because an accounting system can be deemed to be unbiased only if the firm's value is already known, the concept is of little practical use for actual valuation work.

Details

Review of Accounting and Finance, vol. 2 no. 1
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 7 August 2017

Gary Sams

The purpose of this paper is to provide an annual update on case law relating to compulsory purchase and compensation.

Abstract

Purpose

The purpose of this paper is to provide an annual update on case law relating to compulsory purchase and compensation.

Design/methodology/approach

Researching decisions made by the Court of Appeal and Upper Tribunal (Lands Chamber) in the field of compensation. Commentary on the legal and valuation implications of a selection of those cases is provided.

Findings

In the last year, there have been a number of interesting cases concerning residual valuations, blight caused by HS2, and Tree Preservation Orders.

Research limitations/implications

The research is limited by the case law available in the last 12 months and this has been a relatively quiet year.

Practical implications

The commentary should assist practitioners to formulate claims for compensation having regard to recent developments in case law.

Originality/value

Its originality and value lies in the fact that it is based on recent legal decisions which have not yet been widely reported.

Details

Journal of Property Investment & Finance, vol. 35 no. 5
Type: Research Article
ISSN: 1463-578X

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Book part
Publication date: 5 February 2019

Les Coleman

Abstract

Details

New Principles of Equity Investment
Type: Book
ISBN: 978-1-78973-063-0

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Article
Publication date: 1 May 2015

Ranjit Tiwari and Harish Kumar Singla

Being a developing nation with huge opportunity of growth prospects the assessment of valuation models becomes important to have a more realistic value estimate. The…

Abstract

Purpose

Being a developing nation with huge opportunity of growth prospects the assessment of valuation models becomes important to have a more realistic value estimate. The purpose of this paper is to empirically examine the comparative accuracy and explanatory performance of discounted cash flow (DCF) and residual income model (RIM) valuation models for the Indian chemical industry and come up with a composite valuation model.

Design/methodology/approach

To achieve the objective of the study the authors first determine the intrinsic values using both the models. Comparisons of the models are based on prediction errors and the explanatory performance of market value on value estimates. The study uses panel regression to forecast estimates of earnings and measure explanatory performance. The authors examine the ability of the value estimates to explain cross-sectional variation in the observed market values. The study also uses GMM method for deriving robust estimators. Variables for the study are collected from the CMIE’s prowess data base (release 4). The authors consider all 1,075 BSE listed chemical companies for the purpose of the study. The study uses annual data points starting from 31 March 2002 to 31 March 2011.

Findings

The comparative framework shows that both Residual Income model and Composite Valuation model are superior to Discounted cash flow model and are equally likely. But since composite value estimates considers all bonafide informations of individual models, the estimates of Composite Valuation model becomes more reliable.

Research limitations/implications

The study only compares and combines the two most widely used valuation models around the world. Future studies can be conducted using the third widely used valuation models, i.e. multiples and see the level of accuracy of individuals as well as the composite model.

Originality/value

As a concern very few research has been conducted in this area in India. This paper provides practitioners with a snapshot of the applicability of DCF and RIM valuation models. And also shows how a composite value estimate can improve accuracy.

Details

Journal of Accounting in Emerging Economies, vol. 5 no. 2
Type: Research Article
ISSN: 2042-1168

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Article
Publication date: 1 October 2005

Dave Hendriks

Property valuers are often asked to allocate portions of the market value of a property to parts of the subject property. This paper aims to illustrate that the market…

Abstract

Purpose

Property valuers are often asked to allocate portions of the market value of a property to parts of the subject property. This paper aims to illustrate that the market value of a property cannot be divided into a market value for the land and a market value for the improvement.

Design/methodology/approach

Apportionment methods that exist in practice are briefly addressed and shortcomings are identified. Also theory that was developed for valuation and apportionment purposes is discussed and evaluated. From a combination of theory and practice conclusions are drawn and recommendations are made.

Findings

The combination of theory and practice show that the existing apportionment methods are unreliable tools for property analysis. Some suggestions are made concerning tools that might replace apportionment in property analysis.

Practical implications

Apportionment plays an important role in property investment and finance decisions. Due to the International Financial Reporting Standards (IFRS) apportionment will have a strong role to play in financial reporting and through this it will influence management and investment decisions indirectly. This paper shows that apportionment methods are not reliable and that important decisions should not be based on results from apportionment methods. Valuers should no longer supply these apportionments unless the client fully understands the shortcomings of the method used. On the other hand, clients, their advisors and auditors should no longer ask for value apportionments, as there are far more reliable alternatives.

Originality/value

The property profession has been struggling with apportionment theory for years. At this time IFRS introduces a strong need for value apportionment. Therefore, this is the time for the property profession to thoroughly investigate the shortcomings of existing apportionment methods and to come up with alternatives. This paper is an attempt to do just that.

Details

Journal of Property Investment & Finance, vol. 23 no. 5
Type: Research Article
ISSN: 1463-578X

Keywords

Content available
Article
Publication date: 14 July 2020

Murad Harasheh, Andrea Amaduzzi and Fairouz Darwish

This paper aims to investigate the relevance of two groups of valuations models as follows: the accounting models based on the residual income (RIM) and the standard…

Abstract

Purpose

This paper aims to investigate the relevance of two groups of valuations models as follows: the accounting models based on the residual income (RIM) and the standard market model, on equity price, return and volatility relevance.

Design/methodology/approach

The models are tested on companies traded on Palestine exchange from 2009 to 2018, using panel regression analysis. Two-price and two-return models derived from RIM to compare with the market model and four volatility models.

Findings

The standard RIM outperformed other models in equity price modeling. The dividend discount model (DDM) outperformed the rest of the models in terms of return estimation. However, the authors find that the market model can explain equity variance better than RIM and DDM models.

Practical implications

For investors, market beta does not necessarily capture all relevant factors of value and traditional financial statements are still important in providing relevant information and different models are used for different values perspectives (price, return and volatility).

Originality/value

Previous studies focus on comparing the price and return relevance of accounting-based models (RIM and cash flow models). Three aspects differentiate this paper and contribute to its originality, namely, the uniqueness of the context, incorporating the market model into the picture along with the accounting-based models and adding Volatility dimensions of relevance.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 13 no. 5
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 25 November 2013

Karol Marek Klimczak and Grzegorz Szafranski

Value relevance studies, in particular international comparative studies, use market values sampled at different dates relative to the fiscal year-end. This paper aims to…

Abstract

Purpose

Value relevance studies, in particular international comparative studies, use market values sampled at different dates relative to the fiscal year-end. This paper aims to contribute a theoretical and empirical analysis of the relationship between value relevance and the month of market value sampling.

Design/methodology/approach

The paper examines two components of value relevance, coincident relevance and forecast relevance, which the paper develops on the basis of the Ohlson model. The paper measures value relevance by estimating separate panel-data regressions for each of the 12 months around fiscal year-end. The sample consists of companies listed in two continental European countries, France and Germany, over the 1989-2008 period.

Findings

In both country panels, the paper finds that overall value relevance is higher when market value is sampled before or close to fiscal year-end, but incremental value relevance varies between domestic and International Financial Reporting (IFRS) accounting standards. Regression results reveal significant variations in coefficients over the following months of market value in French panel and its IFRS sub-sample only.

Research limitations/implications

The scope of the study is limited to the average value relevance parameters of companies listed on stock exchanges in France and Germany. Future research may be devoted to other countries and study additional determinants of value relevance.

Practical implications

The study shows that the selection of the month of market value sampling can have significant impact on value relevance regression results. Therefore, sensitivity analysis needs to be included in research studies which rely on the value relevance approach.

Originality/value

The paper contributes the first systematic analysis of the variation in value relevance parameters in response to the selection of the month in which market value is sampled.

Details

Accounting Research Journal, vol. 26 no. 3
Type: Research Article
ISSN: 1030-9616

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Article
Publication date: 1 December 1995

Kwong Chau and Wai Lai

Examines the problems of valuing properties in China, as part of anongoing research project on the developing of the socialist marketeconomy in China. Identifies these…

Abstract

Examines the problems of valuing properties in China, as part of an ongoing research project on the developing of the socialist market economy in China. Identifies these problems by examining the valuation reports in the listing documents of the Chinese State enterprises issuing what is termed “H‐shares” in Hong Kong′s Stock Exchange. Comments on the approaches adopted in these valuation reports from both legal and theoretical points of view. Makes reference also to the property laws in China and the guidelines issued by the Hong Kong Stock Exchange for valuation of property in developing markets including China. Despite the different terminology used by Chinese officials, China is moving towards being a capitalist economy. This is evident in many events that have been happening in China. One such event, which started a number of years ago, is the land reform in China which allows private ownership and transfer of land use rights. As a result, nowadays most listed companies in Hong Kong possess, in one form or other, land use rights in China. On the other hand, despite the speed of such changes, China is still very different from other capitalist economies in terms of the organization and operation of its “markets” including the “property market”. Another more recent event is the “privatization” of state‐owned enterprises by way of listing in the stock exchanges of capitalist economies such as Hong Kong and New York, with the former predominating. These two changes have given rise to an issue which is of interest to both academic and practising surveyors: how should property which is situated in China and owned by the state enterprises be valued for the purpose of listing in Hong Kong′s Stock Exchange?

Details

Journal of Property Valuation and Investment, vol. 13 no. 5
Type: Research Article
ISSN: 0960-2712

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Article
Publication date: 1 August 1998

Michael Wrigley and Stephen Hughes

Some particular valuation problems are raised by the development of buildings which are protected for reasons of historical or architectural merit. The experience of…

Abstract

Some particular valuation problems are raised by the development of buildings which are protected for reasons of historical or architectural merit. The experience of Plymouth Development Corporation in seeking to secure the regeneration of the Royal William Yard is a case in point. The Corporation was established in 1993 for a period of five years and one of its principal tasks was to find new uses for the former Royal Naval Victualling Yard which contains ten buildings scheduled as ancient monuments. The Corporation prepared a development strategy for the Yard and adjacent areas incorporating improved access and parking and a mixed‐use brief for other buildings. A compulsory purchase order was issued and, following a lengthy public inquiry, it was confirmed. MEPC was subsequently selected as lead developer with the anchor use being a factory outlet centre. Even with MEPC’s involvement there was a need for a significant level of gap funding. At the end of the Corporation’s life, in March 1998, the deal with MEPC has still to be completed and responsibility passed to English Partnerships.

Details

Journal of Property Valuation and Investment, vol. 16 no. 3
Type: Research Article
ISSN: 0960-2712

Keywords

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