Employing a broad sample of US firms over the period 1962 to 2009, we provide evidence of a liquidity risk impact on the fundamental earnings-returns relation. Specifically, we document that current liquidity risk has a positive moderating effect on the relation between current returns and next...

There is a lot of confusion among practitioners about valuing firms and investment projects. At the first sight the discounting procedure is a simple and routine task, which does not involve much effort. But actually even in simple cases accurate valuation requires attention to plenty of...

This study examines whether analysts' decisions to issue cash flows forecasts depend endogenously on their decision to use these forecasts to set target prices. An endogenous switching regression model, with analyst report regimes of disclosure and non-disclosure of cash flow forecasts, shows...

In empirical tests guided by recent theory (e.g., Hughes, Liu and Liu 2007; and Lambert, Leuz and Verrecchia 2011), we examine the joint effects of information precision, information asymmetry and the level of market competition on firms' cost of equity capital. Consistent with theory, we find that...

The "law of one accounting variable" is defined in this paper as an extension of "the law of one price." It says roughly that if the future payoffs of two assets are the same (in every state of the world), then the accounting variable of the assets are approximately the same. The paper derives a...

This paper presents a theoretical framework for valuation, investment decisions, and performance measurement based on a nonstandard theory of residual income. It is derived from the notion of “unrecovered” capital, which is here named “lost” capital because it represents the capital...

Discount factors have a long tradition of being computed using capital market inputs for the estimation of systematic risk. They are of increasing importance in financial accounting, including the valuation of goodwill and other intangibles. In view of the volatility of stock market returns and...

This study extends the accounting-based valuation framework of Ohlson (1995) and Feltham and Ohlson (1999) to incorporate dynamic expectations about the level of systematic risk in the economy. Our model explains recent empirical findings documenting a strong negative association between changes...

This paper shows that the new financial regulation introduced in 2007 in the Netherlands, the so-called nieuw Financieel Toetsings Kader (nFTK), has several basic flaws. The nFTK evaluation cannot be trusted. The results are misleading and must not be used for policy decisions. 'Funding...

We reexamine the time-series properties and determinants of the relation between aggregate earnings and returns (earnings response coefficient, ERC) employing return decompositions with longer historical data. We find that aggregate ERC is time-varying, above and beyond the evidence documented...