Accounting Valuation and Cost of Capital Dynamics: Theoretical and Empirical Macroeconomic Aspects. Discussion of Callen

Konchitchki, Yaniv

doi:10.1111/abac.12071

Cited by 17 publications

(25 citation statements)

References 45 publications

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“…In this study, we conceptualize HC and IA amounts as two alternative measures that investors can use to predict future cash flows and make investment decisions. 9 For a general summary of this work, see Konchitchki (2016).…”

Section: The Valuation Effects Of Hc and Ia Accounting Amountsmentioning

confidence: 99%

Financial Reporting in Hyperinflationary Economies and the Value Relevance of Accounting Amounts: Hard Evidence From Zimbabwe

et al. 2018

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We examine the relative and incremental value relevance of inflation-adjusted (IA) and historical cost (HC) amounts in a hyperinflationary economy. Using an innovative setting and a unique dataset drawn from annual reports of firms listed on the Zimbabwe Stock Exchange for the 2000-2005 period, we find that both sets of amounts are value relevant, but HC amounts are superior to IA amounts. We also show that inflation gains and losses provide incremental information content beyond that provided by the HC amounts and that the power of this incremental content model is equivalent to that of the HC model but superior to that of the IA model. Furthermore, we find that during the period of relatively low inflation, HC amounts are more value relevant than IA amounts, but the differences are less discernible during the period of relatively high inflation. Our analyses further show that the value relevance of both IA and HC amounts increases with the inflation rate, but the increase is greater for IA amounts. Finally, we show that HC amounts have a greater ability to predict future cash flows than IA amounts, which suggests that the superiority of the value relevance of HC amounts relative to that of IA amounts stems from their ability to predict future cash flows. Overall, our results suggest that in periods of relatively low inflation, HC amounts are more value relevant, while in periods of relatively high inflation, the two sets of amounts are equally value relevant and provide incremental information beyond that provided by the other.

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Section: The Valuation Effects Of Hc and Ia Accounting Amountsmentioning

confidence: 99%

Financial Reporting in Hyperinflationary Economies and the Value Relevance of Accounting Amounts: Hard Evidence From Zimbabwe

et al. 2018

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“… For a recent review of research on accounting valuation, see Abacus Special Issue ‘Advances in Equity Valuation’ including papers by Johnstone (), Callen (), Konchitchki (), Easton and Monahan (), Ecker (), Ohlson and Johannesson (), Nekrasov (), Penman (), Lyle (), Konstantinidi et al . (), Patatoukas (), Christodoulou et al .…”

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confidence: 99%

Corporate distress prediction in China: a machine learning approach

Jiang

Jones

2018

Accounting & Finance

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Rapid growth and transformation of the Chinese economy and financial markets coupled with escalating default rates, rising corporate debt and poor regulatory oversight motivates the need for more accurate distress prediction modelling in China. Given China's historical, social and cultural intolerance towards corporate failure, this study examines the Special Treatment system introduced by Chinese regulators in 1998. Regulators can assign Special Treatment status to listed Chinese companies for poor financial performance, financial abnormality and other events. Using an advanced machine learning model known as TreeNet Ò we model more than 90 predictor variables, including financial ratios, market returns, macro-economic indicators, valuation multiples, audit quality factors, shareholder ownership/control, executive compensation variables, corporate social responsibility metrics and other variables. Based on out-of-sample tests, our TreeNet Ò model is 93.74 percent accurate in predicting distress (a Type I error rate of 6.26 percent) and 94.81 percent accurate in predicting active/healthy companies (a Type II error rate of 5.19 percent). Variables with the strongest predictive value in the TreeNet Ò model includes market capitalization and annual market returns, macro-economic variables such as gross domestic product growth, financial ratios such as retained earnings to total assets and return on assets; and certain non-traditional variables such as executive compensation.

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“…Konchitchki (2016a) explains that there are two research areas in Macro-Accounting research. One, called "Macro-to-Micro,"…”

Section: Resultsmentioning

confidence: 99%

“…4 Furthermore, they indicate that even a significantly negative relation can be observed. Several other U.S. studies report that the observed aggregate earnings-returns relation is not significantly positive in a simple regression or in a pairwise correlation 5 (KLW; Anilowski et al 2007;Bali et al 2008;Hirshleifer et al 2009;Sadka and Sadka 2009;Uysal 2010;Patatoukas 2014;Gallo et al 2016;Konchitchki 2016a). …”

mentioning

confidence: 89%

“…According to Konchitchki (2016a), there are two typical Macro-Accounting areas, "Macro-to-Micro" and "Micro-to-Macro." The former research area, "Macro-to-Micro," tackles how various types of macroeconomic information affect or improve the firm-level prediction of future performance or stock valuation (e.g., Konchitchki 2011Konchitchki , 2013Li et al 2014;Williams 2015;Konchitchki et al 2016).…”

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confidence: 99%

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Market-Wide Cost of Capital Impacts on the Aggregate Earnings-Returns Relation: Evidence from Japan

Yoshinaga¹

2016

TJAR

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This study aims to clarify the mechanism of the surprising earnings-returns relation observed at the aggregate level by offering evidence from Japan. Unlike firm-level evidence, recent Macro-Accounting research reports that when earnings changes and stock returns of individual firms are cross-sectionally aggregated, a significantly positive relation cannot be observed in the U.S. market. To explain this puzzling finding, Kothari et al. (2006) propose a hypothesis that negative effects of changes in the market-wide cost of capital cancel out positive effects of aggregate earnings changes on aggregate stock returns. Although this hypothesis is empirically supported in the U.S market, the validity of this hypothesis has not been sufficiently investigated in the Japanese market. Thus, we test the hypothesis and find it robustly supported in Japan. Our results show that positive effects of aggregate earnings changes on aggregate stock returns are canceled out by the effects of the market-wide cost of capital. We also find that these canceling effects stem from the market risk premium in Japan. An additional test we conduct shows that expected aggregate earnings changes and changes in the market risk premium are JEL Classification: E44, G12, G14, M41

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Accounting Valuation and Cost of Capital Dynamics: Theoretical and Empirical Macroeconomic Aspects. Discussion of Callen

Cited by 17 publications

References 45 publications

Financial Reporting in Hyperinflationary Economies and the Value Relevance of Accounting Amounts: Hard Evidence From Zimbabwe

Financial Reporting in Hyperinflationary Economies and the Value Relevance of Accounting Amounts: Hard Evidence From Zimbabwe

Corporate distress prediction in China: a machine learning approach

Market-Wide Cost of Capital Impacts on the Aggregate Earnings-Returns Relation: Evidence from Japan

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