Fundamental valuation of extra-financial information

Abstract

Abstract:In this study, we augment seminal models based on Ohlson (1995) by integrating the value impact of ratings related to three different extra-financial categories, i. e. corporate governance, human capital, and innovation capital. For a sample of large European public firms, we find that a model including human capital information and analysts' earnings forecasts best explains current stock prices. Our model based on human capital information (without analysts' forecasts) best identifies under-and overvalued companies and is thus useful for generating future positive hedge returns.This supports the findings of Dechow et al. (1999), who hold that models incorporating analysts' forecasts are superior in explaining contemporaneous market prices and models lacking this information exhibit the greatest predictive ability. We find that extra-financial information indeed conveys value relevant information beyond accounting figures and analysts' earnings forecasts.Keywords: Capital markets; Extra-financial information; Information dynamics; Ohlson (1995) IntroductionIn this study, we analyze whether extra-financial information (EFI) is useful for explaining firms' current market prices and for identifying under-and overvalued firms. We use the term EFI because it lends a broader connotation than intangible assets or intellectual capital. We specifically study the effects of corporate governance (CG), human capital (HC), and innovation capital (IC) information. The remainder of the introduction is structured as follows: First, we present empirical evidence for the relationship between EFI and company performance, respectively the stock price. Then, we map the theoretical link between EFI and the residual income used to determine the fundamental value of a company. Finally, we give an overview of the implemented valuation models based on Ohlson (1995) and pose our research questions.The notion whether EFI contributes in determining the fundamental value of firms is supported by growing literature dealing with corporate market value and book value.Many studies attribute extra-financials to the discrepancy between a firm's book value and market value. Among these studies is Sáenz (2005), who examines the relationship between human, structural and relational capital indicators and the market-to-book ratio for banks in Spain. He finds a positive relationship between HC indicators and the market-to-book ratio. Amir and Lev (1996) investigate the value relevance of financial and non-financial information in the cellular communications industry and Deng et al.(1999) look at the ability of patent-related measures to predict stock returns and marketto-book ratios.2 Daniel and Titman (2006), a recent study that examines the book-to-market effect on stock returns, takes an innovative approach that distinguishes between information on tangible and intangible assets. Tangible assets are defined as measures of past accounting-based performance and intangible assets as the component of news about future performance, which is unr...

Rozszerzona sprawozdawczość biznesowa spółek giełdowych

“…Informacje na temat aktywów niematerialnych są wykorzystywane przez ich odbiorców i są istotne dla wyceny spółki 271 . Uwzględnianie tych informacji jako dodatkowych do tych pochodzących z systemu rachunkowości pomaga uczestnikom rynku identyfikować te spółki, których wartości są niedoszacowane lub przeszacowane 272 .…”