Dividend Irrelevance and Accounting Models of Value

Rees, William; Valentincic, Aljosa

doi:10.2139/ssrn.1966026

Cited by 2 publications

(9 citation statements)

References 48 publications

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“…We structure our analyses into four main sections: valuation models with and without OI (Ohlson, 1995) and forecasting models of future earnings with and without OI (Rees and Valentincic, 2013).…”

Section: Empirical Modelsmentioning

confidence: 99%

“…This is counter to theoretical reasons that predict that dividends should reduce value on a one-to-one basis (dividend displacement). In a recent paper, Rees and Valentincic (2013) show that this positive relation is driven by the relationship between the following: (i) dividends and core earnings, and (ii) dividends and other information (OI) derived from the valuation error in the prior year. If core earnings can be effectively modeled in a valuation specification including OI, Rees and Valentincic (2013) show that dividend displacement can no longer be rejected.…”

Section: Introductionmentioning

confidence: 99%

“…In a recent paper, Rees and Valentincic (2013) show that this positive relation is driven by the relationship between the following: (i) dividends and core earnings, and (ii) dividends and other information (OI) derived from the valuation error in the prior year. If core earnings can be effectively modeled in a valuation specification including OI, Rees and Valentincic (2013) show that dividend displacement can no longer be rejected. They achieve this by modeling expectations about future profitability, either explicitly or implicitly by excluding loss-making observations that do not pay dividends.…”

Section: Introductionmentioning

confidence: 99%

“…However, other studies show that the Indonesian market is not yet efficient (e.g., Jarret, 2010). Other than being important in pricing of shares, dividends may act as predictors of future core earnings in the absence of OI (Rees and Valentincic, 2013). Leuz et al (2003) compared the earnings quality based on country-level corporate governance.…”

Section: Introductionmentioning

confidence: 99%

“…If earnings are of low quality, then the valuation role of dividends versus earnings should increase. 2 In relation to value relevance of accounting information, recent models proposed by scholars (e.g., Rees and Valentincic, 2013) indicate a way to minimize the negative impact on market valuation of shares caused by low quality of accounting information (in this case earnings). Therefore, examining the dividends' role in the firms' valuation is important for the Indonesian environment as well as for other international contexts where earnings quality is low.…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

Valuation and Forecasting Roles of Dividends of Indonesian Listed Firms

Hutagaol‐Martowidjojo

Valentincic

2015

Financ Manag Account

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We study the role of dividends in valuation and in forecasting future earnings in a low‐protection environment with highly concentrated ownership that is expected to yield low earnings quality. Using a sample of 372 distinct Indonesian firms listed on the IDX during the period 1995 to 2012 we show that dividends are reliably positively priced by the capital market, violating thus the dividend displacement theorem. This result persists even after controlling for some typical factors that affect firm value (capital structure, risk) and the effect of factors not separately identified, but priced by the Indonesian capital market (other information). Dividends replace accounting earnings entirely in valuation. Dividends are positively correlated to future earnings over and above current accounting earnings and other accounting and market variables. Both findings show that dividends play a central role on the Indonesian capital market. Finally, we show evidence consistent with the view that earnings management of Indonesian firms after 2002 is contractually efficient rather than opportunistic.

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Section: Empirical Modelsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Valuation and Forecasting Roles of Dividends of Indonesian Listed Firms

Hutagaol‐Martowidjojo

Valentincic

2015

Financ Manag Account

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What Explains the Valuation Difference between Intangible‐intensive Profit and Loss Firms?

Ciftci¹,

Darrough

2015

Business Fin & Account

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Prior research suggests that loss firms are valued based on their abandonment/adaptation option values, while profit firms are valued as going concerns. However, conservative accounting treatment of expensing of R&D leads many R&D‐intensive firms to report losses even though they are not in financial distress. In this paper we investigate the difference in valuation of profit and loss firms that invest in intangibles, either through internal development (R&D) or purchases. The accounting treatment for internally developed intangibles is conservative in that US GAAP requires immediate expensing. Yet, it allows recognition of purchased intangibles. We find that in valuation of firms with high recognized‐intangible assets, book value has more prominence in loss firms than profit firms, while that is not the case for firms with high R&D expenditures. This suggests that their abandonment/adaptation option explains the difference in valuation between profit and loss firms with high recognized‐intangibles, while conservative accounting explains the valuation difference between profit and loss firms with high R&D intensity. This result suggests that recognition of intangibles in financial statements might mitigate the conservative bias in accounting numbers.

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Dividend Irrelevance and Accounting Models of Value

Cited by 2 publications

References 48 publications

Valuation and Forecasting Roles of Dividends of Indonesian Listed Firms

Valuation and Forecasting Roles of Dividends of Indonesian Listed Firms

What Explains the Valuation Difference between Intangible‐intensive Profit and Loss Firms?

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