Discussion of “Residual Income and Value-Creation: The Missing Link”

Discussion of “Residual Income and Value-Creation: The Missing Link” Review of Accounting Studies, 7, 247–251, 2002 C 2002 Kluwer Academic Publishers. Manufactured in The Netherlands. Discussion of “Residual Income and Value-Creation: The Missing Link” JAMES A. OHLSON NYU/Stern School of Business I. Introduction O’Hanlon and Peasnell’s paper [OP, henceforth] on residual income and value creation makes a significant contribution to the literature. A backward-looking analysis of residual income is not only of mathematical interest, as it extends the usual forward-looking residual income valuation relationship (RIVR, to use OPs acronym), but also critical to the concept inherent in residual income and its applications. As a consequence, my major complaint about the paper pertains to a phrase in the title, “The Missing Link.” My comments will argue that phrase understates the importance of the OP analysis: The retrospective residual income formula (RIBR/EVC) takes on a more central role as compared to the usual prospective formula (RIVR). Two closely related arguments will support this claim; both depend on the simple observation that regardless of the perspective—backward or forward-looking—all of the formulae center around book value and the growth of book value. First, because book value represents an “investment” or stock concept, residual income meshes naturally with performance evaluation. But performance evaluation http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “Residual Income and Value-Creation: The Missing Link”

Loading next page...
 
/lp/springer_journal/discussion-of-residual-income-and-value-creation-the-missing-link-0v8wxbGNXs
Publisher
Springer Journals
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1020234304861
Publisher site
See Article on Publisher Site

Abstract

Review of Accounting Studies, 7, 247–251, 2002 C 2002 Kluwer Academic Publishers. Manufactured in The Netherlands. Discussion of “Residual Income and Value-Creation: The Missing Link” JAMES A. OHLSON NYU/Stern School of Business I. Introduction O’Hanlon and Peasnell’s paper [OP, henceforth] on residual income and value creation makes a significant contribution to the literature. A backward-looking analysis of residual income is not only of mathematical interest, as it extends the usual forward-looking residual income valuation relationship (RIVR, to use OPs acronym), but also critical to the concept inherent in residual income and its applications. As a consequence, my major complaint about the paper pertains to a phrase in the title, “The Missing Link.” My comments will argue that phrase understates the importance of the OP analysis: The retrospective residual income formula (RIBR/EVC) takes on a more central role as compared to the usual prospective formula (RIVR). Two closely related arguments will support this claim; both depend on the simple observation that regardless of the perspective—backward or forward-looking—all of the formulae center around book value and the growth of book value. First, because book value represents an “investment” or stock concept, residual income meshes naturally with performance evaluation. But performance evaluation

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 21, 2004

References

  • Conservative Accounting and Equity Valuation
    Zhang, X. J.

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off