Prior to investing in a firm, fund managers must evaluate it. This tilts funds’ future portfolio positions toward former portfolio investments, as the past awareness of the firm decreases the cost of evaluating it in the future. We find that firms with many former investors experience...

We show that the standard notion of residual income (RI) does not fulfill additive coherence. This gives rise to ambiguities and inconsistencies. The pitfall resides in the capital charge, which blends a non-market value with a market rate. We solve the problem by using a capital charge based on...

The aim of this study is to analyze different forecasting approaches for the variance of future earnings, compare the respective forecast accuracy and test whether the forecasted information are relevant to equity or debt markets. The results, in line with former research, indicate that...

Firms’ use of accounting discretion to report a smooth earnings profile is commonly believed to be pervasive. We examine if smoothing, at least partly, reflects managerial attempts to avert unhealthy pressures from outsiders who cannot fully disentangle the impact of transitory shocks from...

We examine the effect of options trading volume on the stock price response to earnings announcements over the period 1996-2007. Contrary to previous studies, we find no significant difference in the immediate stock price response to earnings information announcements in samples split between...

The purpose of this study is to examine empirically how the presence of earnings management may affect firm valuation. We compare the performance of earnings-based (e.g., Residual Income Model, RIM) and non-earnings-based (e.g., Discounted Cash Flow, DCF) valuation models, measured by absolute...

The paper analyses the possibility of using the economic concept of income introduced by J. R. Hicks for accounting purposes. Despite some disadvantages hindering from its broader practical utilization, this concept still finds its place in the area of managerial accounting and capital...

This paper outlines a tactical asset allocation (TAA) strategy that takes signals from the credit markets and applies them to the stock market. A power model is built using the Russell 2000 equity index and the Bank of America/Merrill Lynch High Yield B index. This model is then used in a...