Accounting, Expectations and Valuation

Rees, William Page (2001) Accounting, Expectations and Valuation. PhD thesis, University of Glasgow.

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Abstract

The ten submitted pieces of work, two chapters from one text, two sole authored journal articles and six jointly authored journal articles are part of a continuing investigation into accounting numbers, the markets expectations for those numbers, and the valuation of firms by the market, based on the accounting numbers and expectations. It is difficult to separate the submitted papers from other published papers by the author (six are cited in the discussion) and from continuing work and working papers that are not yet published in academic journals (another six are cited in the discussion). However the journal articles are drawn from a related set of papers published over seven years (1995-2001). The text comes from 1990. It is interesting in that a number of the ideas addressed later are first discussed in the text, in some instances somewhat before their popularisation in the academic literature. The two chapters submitted show that there was little European evidence available on earnings forecasting or accounting based valuation models when this research programme started. The findings from the various studies were as follows: The earnings forecasts of analysts were surprisingly poor. Although at short forecast horizons, perhaps less than six months, analysts' forecast did seem to have some predictive ability in most countries across Europe, there was little evidence of useful forecasting at longer horizons. Even at the shorter horizons the analysts were usually optimistic and inefficient. Earnings and book values were clearly linked to the value of firms in predictable ways and in ways that reflected the expectations of changes in those variables. The results in the various papers submitted were consistent with dividends indicating persistence in earnings; with negative earnings being valued as though they are essentially transient, and in which case the book values of equity acted as a surrogate indicator of persistent earnings; and with the different growth patterns of multinational and domestic firms being reflected in the slope coefficients in predictable ways. Finally, examining the markets reaction to revisions in analysts' forecasts linked the value relevance of accounting numbers and the forecasts of analysts. Despite the limited accuracy of the forecasts, and despite the predictions of the efficient market hypothesis, the evidence was consistent with analysts' forecast revisions preceding significant share price changes in a manner that would appear to have been exploitable. This programme of work is not complete. Further studies are extending the valuation models to financial firms, investigating tax effects and international differences. Examination of the prediction of accounting numbers from valuation models and an investigation of forecasts and price/earnings behaviour are also in progress. Nevertheless the work submitted represents substantial and developing body of work.

Item Type: Thesis (PhD)
Qualification Level: Doctoral
Keywords: Accounting
Date of Award: 2001
Depositing User: Enlighten Team
Unique ID: glathesis:2001-75971
Copyright: Copyright of this thesis is held by the author.
Date Deposited: 19 Dec 2019 09:15
Last Modified: 19 Dec 2019 09:15
URI: http://theses.gla.ac.uk/id/eprint/75971

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