On the empirical relationship between market value and residual income in the U.K.

Tax planning, corporate governance and equity value

“…13 The subsequently reported results are robust to measuring the market value of equity six months after the year-end. This alternative measurement of market value allows a longer period for information in the annual financial report to be reflected in the share price (Rees, 1997;Stark & Thomas, 1998;O'Hanlon & Pope, 1999).…”

“…To test whether shareholder valuations of tax planning are conditional on the nature of the tax planning, in model IV the variable TP is replaced by its individual components TLOSS, TPD, TTD, STRDIF and TUNC as follows: Table 3 about here XXX Each of the four models is deflated to control for any scale effects (Stark & Thomas, 1998;Akbar & Stark, 2003). In the absence of a theoretical justification on how to control for such effects a number of alternate deflators are used; opening book value of equity, opening market value of equity, number of shares and sales (Rees, 1997;Liu & Stark, 2009).…”

Has Management Accounting Research been critical?

“…Gietzman, 1990;Baird et al, 2004;Wiersma, 2009) but others expressed reservations. These included: unsubstantiated claims of a crisis (Holzer and Norreklit, 1991); alleged benefits of ABC, BSC and EVA being excessive (Bromwich and Walker, 1998;Stark and Thomas, 1998); ABC being dysfunctional (Malmi, 1997;Major and Hopper, 2005); ABC, BSC and EVA not being novel (Horngren, 1995;Staubus, 1990;Bourguignon et al, 2004) and sometimes technically inaccurate (Brignall et al, 1991;Mitchell, 1994;Abernathy et al, 2001); implementation problems (Innes and Mitchell, 1990), especially if they lack collective worker participation and appropriate leadership styles (Horzée and Bruggeman, 2010); waning practitioner interest and adoption (Christensen and Wagenhofer, 1997;Innes, 2000); applications deviating from recommended prescriptions (Kellett and Sweeting, 1991;Spechbacker et al, 2003); their interpretive flexibility to accommodate conflicts over their scope and purpose when practiced deviating from claims that they are objective and well-defined (Ax and Bjornenak, 2005). Ironically given assertions that such reforms could address Japanese competition, Japanese firms proved indifferent and preferred Just-in-time and Total Quality Management philosophies emphasising simple controls, forward strategic planning, target costing, and communicating goals and strategies to employees (Yoshikawa, 1994;Scarborough et al, 1991).…”

A Comparison of Error Rates for EVA, Residual Income, GAAP-Earnings, and Other Metrics Using a Long-Window Valuation Approach

“…However, its role as a tool of management accounting in controlling and rewarding managerial performance is at least as prominent as its claimed contribution to investors seeking a relevant basis for equity valuation (Bromwich and Walker, 1998;O'Hanlon and Peasnell, 1998;Stark and Thomas, 1998). A main finding in the literature on residual income is that a single-period residual income figure is not a reliable indicator of the periodic change in shareholder wealth (see, e.g., Bromwich and Walker, 1998;and O'Hanlon and Peasnell, 1998); hence a long window research design is more appropriate than a one period window.…”