Obtaining more accurate equity value estimates is the starting point for stock selection, value-based indexing in a noisy market, and beating benchmark indices through tactical style rotation. Unfortunately, discounted cash flow, method of comparables, and fundamental analysis typically yield...

Why do 60% of target boards voluntarily solicit and pay for seemingly worthless 'Texas-wide' fairness opinions while 40% of their peers do not? Our new insight is that target boards speak to more than one shareholder generation through fairness opinions. We model fairness opinions as a...

This article develops a consumption-based valuation model that treats earnings and cash flow as complementary information sources. The model integrates three ideas that do not appear in traditional valuation models: (i) earnings provide information about future shocks to cash flow; (ii) earnings...

This article offers a model that articulates how the capitalization of costs affects contemporaneous earnings and the growth path of expected earnings. It makes three points. First, reported earnings under successful efforts are more price-relevant than earnings under full costing or full...

This article articulates how forward earnings are more accurate valuation attributes than trailing earnings. First, I show that, while linear accrual rules cannot achieve accurate trailing earnings-value relations in a setting with unobserved information, they can achieve accurate forward...

This article solves a model that links earnings quality to the equity risk premium in an infinite-horizon consumption CAPM economy. In the model, risk-averse traders hold diversified portfolios consisting of a risk-free bond and shares of many risky firms. When constructing their portfolios,...

How does the presence of a growth option affect expected earnings growth? This paper analyzes a firm with one growth option and an accrual accounting policy that, in the absence of a growth option, would equate accounting earnings to Hicksian earnings. Under this accounting policy, the presence...

The concept of residual income has become popular in recent years due, in part, to the Ohlson 1995 article on residual income valuation. Since Ohlson assumed clean surplus accounting in that article, the concept of residual income and clean surplus accounting have become intimately linked in the...

This article characterizes controlling and minority share prices and optimal appraisal-remedy valuation rules in a rational expectations equilibrium. The model identifies a set of optimal judicial valuation policies that would motivate shareholders to make optimal investment and freeze-out...

The estimates provided by discounted cash flow, the method of comparables, and market prices usually disagree. Combining two or more of these value estimates makes sense because every bona fide estimate provides information and because relying on one estimate ignores the information content of...