Information dynamics, dividend displacement, conservatism, and earnings measurement: a development of the Ohlson (1995) valuation framework

Information dynamics, dividend displacement, conservatism, and earnings measurement: a... This paper extends the Ohlson (Contemp Account Res 11, 661–687, 1995) equity valuation framework by demonstrating that dividend displacement continues to hold when dividends have a positive forecast coefficient in the linear abnormal earnings dynamic. The analysis demonstrates that such a predictive role for dividends implies a positive association between cum div book value of equity and the present value of expected abnormal earnings, consistent with both dividend displacement and accounting conservatism. While a signaling role for dividends is ruled out, a link between dividends, expected performance, and equity value is, however, demonstrated. The paper also considers a linear information model where an undefined variable replaces realized abnormal comprehensive earnings as an indicator of future performance. The role of this variable as a predictor of future abnormal comprehensive earnings is highlighted and the special case where it corresponds to recurring abnormal earnings is considered. This latter case provides useful implications for implementation of asset revaluations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Information dynamics, dividend displacement, conservatism, and earnings measurement: a development of the Ohlson (1995) valuation framework

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Publisher
Springer Journals
Copyright
Copyright © 2012 by Springer Science+Business Media, LLC
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-012-9211-x
Publisher site
See Article on Publisher Site

Abstract

This paper extends the Ohlson (Contemp Account Res 11, 661–687, 1995) equity valuation framework by demonstrating that dividend displacement continues to hold when dividends have a positive forecast coefficient in the linear abnormal earnings dynamic. The analysis demonstrates that such a predictive role for dividends implies a positive association between cum div book value of equity and the present value of expected abnormal earnings, consistent with both dividend displacement and accounting conservatism. While a signaling role for dividends is ruled out, a link between dividends, expected performance, and equity value is, however, demonstrated. The paper also considers a linear information model where an undefined variable replaces realized abnormal comprehensive earnings as an indicator of future performance. The role of this variable as a predictor of future abnormal comprehensive earnings is highlighted and the special case where it corresponds to recurring abnormal earnings is considered. This latter case provides useful implications for implementation of asset revaluations.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 5, 2012

References

  • Valuation and clean surplus accounting: some implications of the Feltham and Ohlson model for the relative information content of earnings and cash flows
    Clubb, CDB

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