Calculations of the Implied Cost of Capital (ICC) typically fail on validation criteria. This paper provides an explanation. Though nominally working with accounting-based valuation models, the standard approach fails to recognize accounting principles that govern the accounting. Those...

We connect conservative accounting to the cost of capital by developing an accounting model within an asset pricing framework. The model has three distinctive features: (1) transaction-cycle-conformity, where the book value equals the value of cash at the beginning and the end of a cash-to-cash...

This paper offers an approach for estimating the cost of capital from observed accounting information and compares the resulting estimates to so-called implied cost of capital (ICC) calculations and those from asset pricing models. The approach is based on two ideas. First, buying expected...

The International Accounting Standards Board (IASB) and The Financial Accounting Standards Board (FASB) recently issued a joint exposure draft on accounting for leases. This exposure draft seeks to shift lease accounting from an “ownership” model to a “right-to-use” model. Under the...

Standard formulas for valuing the equity of going concerns require prediction of payoffs "to infinity" but practical analysis requires that they be predicted over finite horizons. This truncation inevitably involves (often troublesome) "terminal value" calculations. This paper contrasts dividend...

A claim is commonly made that cash and accrual accounting methods for valuing equities must always yield equivalent valuations. A recent paper by Lundholm and O'Keefe (Contemporary Accounting Research, Summer, 2001), for example, claims that, because of this equivalence, there is nothing to be...

During the recent stock market bubble, the traditional financial reporting model was assailed as a backward looking system, out of date in the Information Age. With the bursting of the bubble, the quality of financial reporting is again under scrutiny, but now for not adhering to traditional...

During the recent stock market bubble, the traditional financial reporting model was assailed as a backward looking system, out of date in the Information Age. With the bursting of the bubble, the quality of financial reporting is again under scrutiny, but now for not adhering to traditional...