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....

We combine a fundamental property of accruals and a behavioral phenomenon to provide an explanation for the accrual anomaly. The fundamental property is: accruals that originate must subsequently reverse. The behavioral phenomenon is: individuals tend to underestimate the variance of noisy...

Out-of-sample prediction of profitability is a critical step in fundamental analysis and yet even sophisticated regression models do not generate predictions that significantly outperform random walk predictions. We employ random forests with classification trees, a method from machine learning,...

We investigate whether and how the complexity of derivatives influences analysts' earnings forecast properties. Using a difference-in-differences design, we find that, relative to a matched control sample of non-users, analysts' earnings forecasts for new derivatives users are less accurate and...

Prior studies have documented the asymmetrical behavior of selling, general and administrative (SGamp;A) costs (i.e., SGamp;A costs increase more when activity rises than they decrease when activity falls), and have explained this phenomenon primarily with economic factors. Drawing on agency...

We investigate whether and how the complexity of derivatives influences analysts' earnings forecast properties. Using a difference-in-differences design, we find that, relative to a matched control sample of non-users, analysts' earnings forecasts for new derivatives users are less accurate and...

We examine whether stock prices fully reflect the value of firms' intangible assets, focusing on research and development (R&D). Since intangible assets are not reported on financial statements under current U.S. accounting standards and R&D spending is expensed, the valuation problem may be...

Valuation theory, investment managers, financial analysts, and textbooks advocating horizontal financial statement analysis suggest that the change in earnings growth (earnings acceleration) conveys value relevant information. We test this assertion using a large sample of U.S. firms. Results...

We invert the residual income valuation model (using current stock prices, current book value of equity and short-term forecasts of accounting earnings) to obtain an estimate of the expected rate of return for a portfolio of stocks. Our approach is analogous to the estimation of the internal...