Two valuation models based on accounting concepts and measurements are specified and discussed in the paper - a "residual income valuation" model and a "value added valuation" model. Given clean surplus accounting, the first model is identical to a model where future expected dividends and a...

The impact of conservative accounting in residual income valuation (RIV) and abnormal earnings growth (AEG) valuation modeling is investigated in this paper. Unconstrained and two types of constrained model specifications are evaluated regarding their ability to withstand biases in book values...

Using Swedish stock market data, this study investigates whether an investment strategy based on publicly available accounting information can generate abnormal investment returns. The strategy involves two steps. First, an accounting-based probabilistic prediction model of changes in the...

The purpose of the paper is to incorporate probabilistic business failure predictions in discounted cash flow (DCF) models for the valuation of company bonds and owners´ equity. The analysis shows that period-specific probabilities of business failure are instrumental to the assessment of...

Probabilistic business failure prediction models are commonly estimated from non-random samples of companies. The proportion of failure companies in such samples is often much larger than the proportion of failure companies in most real-world decision contexts. This so-called “choice-based...

We investigate a disaggregated version of the abnormal earnings growth (AEG) model of Ohlson and Juettner-Nauroth (2005). The value of the firm then becomes discounted free cash flows minus initial debt. Discounted free cash flows are equal to capitalized operating earnings from the initial...

In contrast to the theory based propositions in Modigliani and Miller (1958; 1963) of a positive relationship between the cost of equity capital and financial leverage, claims of a negative empirical relationship between stock returns and leverage have been made in the article 'The Book-to-Price...