This paper estimates the cost of capital from observed accounting information and compares the resulting estimates with so-called implied cost of capital (ICC) calculations and those from asset pricing models. The estimates are based on the idea that buying earnings growth is risky, and...

This paper investigates the question of whether so-called anomalous returns predicted by accounting numbers are normal returns for risk or abnormal returns. It does so via a model that shows how accounting numbers inform about normal returns if pricing were rational. The model equates expected...

The paper demonstrates empirically that GAAP earnings have properties to serve as a substitute for dividends in equity valuation analysis. Dividends reduce subsequent GAAP earnings, and quot;intrinsicquot; equity prices calculated by forecasting earnings are thus reduced by current dividends....

Research has concluded that there has been a decline in the informativeness of financial reports over recent years. The reported decline has been attributed to an increasing mismatch of expenses to revenues in the income statement. This paper challenges this attribution: Mismatching that results...

This paper recasts the consumption asset pricing model in terms of observable accounting outcomes by recognizing accounting principles that connect those outcomes to consumption and the risk to consumption. The model prompts the construction of a pricing factor from observed accounting...

This paper modifies the standard returns-earnings regression in accounting research to show that financial reports convey both cash-flow news and discount-rate (expected-return) news. The paper points to the realization principle, associated as it is with the resolution of risk, as the...

Under accounting principles, the recognition of earnings is path dependent and the path depends on risk resolution: Under the so-called realization principle, earnings are not booked until uncertainty is resolved. In asset pricing terms, the principle means that earnings cannot be recognized...

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 of an investment equals the value of cash at the beginning and the end...

This paper revises the standard interpretation of the book rate of return as a measure of profitability. Rather, due to conservative accounting, the book rate of return informs about risk and the expected return to the investor. In contrast to asset pricing research where the book rate of return...

To meet the objectives of financial reporting in the International Accounting Standards Board's Conceptual Framework, the 'balance-sheet approach' embraced by the Framework is necessary but not sufficient. Critical, but largely overlooked, is the role of uncertainty, which we argue defines the...