Endogenous problems in cross-sectional valuation models based on accounting information

Endogenous problems in cross-sectional valuation models based on accounting information The main purpose of this paper is to deal with the analysis of the scale effect in the value-relevance of accounting numbers. We examine the impacts of widely used deflators on the adjustment of scale effect. We find that most of the usual deflators employed in the literature generate endogeneity problems. In this paper we recommend the use of exogenous deflator such as the number of employees in market-based accounting research models. This alternative deflator produces, at least for the USA and Canada data, slightly better statistical results than other (endogenous) deflators such as the market value, the book value of equity, or the total assets. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Endogenous problems in cross-sectional valuation models based on accounting information

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Publisher
Springer US
Copyright
Copyright © 2010 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-010-0203-2
Publisher site
See Article on Publisher Site

Abstract

The main purpose of this paper is to deal with the analysis of the scale effect in the value-relevance of accounting numbers. We examine the impacts of widely used deflators on the adjustment of scale effect. We find that most of the usual deflators employed in the literature generate endogeneity problems. In this paper we recommend the use of exogenous deflator such as the number of employees in market-based accounting research models. This alternative deflator produces, at least for the USA and Canada data, slightly better statistical results than other (endogenous) deflators such as the market value, the book value of equity, or the total assets.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Sep 14, 2010

References

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