This paper develops a theoretical model to explain corporate divestment in the context of accounting-based valuation and provides empirical evidence to support the model's predictions. Building on Zhang's (2000) real-options-based equity value model, we develop a model to explain why firms with...

This paper provides theory and evidence showing how accounting variables explain cross-sectional stock returns. Based on Zhang (2000), who relates equity value to accounting measures of underlying operations, we derive returns as a function of earnings yield, equity capital investment, and...

This paper provides theory and evidence showing how accounting variables explain cross-sectional stock returns. Based on Zhang (2000), who relates equity value to accounting measures of underlying operations, we derive returns as a function of earnings yield, equity capital investment, and...

This paper develops a theoretical model to explain corporate divestment in the context of accounting-based valuation and provides empirical evidence to support the model's predictions. Building on Zhang's (2000) real-options-based equity value model, we develop a model to explain why firms with...

Economic reasoning suggests that capital follows profitability. This study introduces into residual income valuation quot;capital follows profitabilityquot; investment dynamics whereby capital investments are guided by the profitability of underlying investment opportunities. These investment...

Employing a real options based valuation model, this paper examines the valuation roles of earnings and book value and cross-sectional differences in valuation properties. Consistent with theoretical predictions, we find that (i) as profitability increases, the value impact of earnings increases...

Applying an option-based valuation approach, we develop and test a model that addresses the incremental value relevance of segment data beyond firm-level accounting data. Prior studies (e.g., Zhang 2000; Biddle et al. 2001) show that firm value relates to accounting data (in part) because accounting...

This study examines the relevance of modified audit opinions (MAO) in private debt contracting. We use the auditor's explanatory language to partition MAOs into Inconsistency opinions, resulting from an accounting change or a restatement; and Inadequacy opinions, arising from a material...

Prior studies show that equity value has convex relations with earnings and book value of equity, respectively, due to growth and adaptation options (Burgstahler and Dichev 1997a; Zhang 2000). These studies, however, do not consider the role of institutions in affecting firms' ability to exercise...