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留学生毕业论文:Comparative Assessment of Feltham–O(8)


Where:
a
j t x , : abnormal earnings of firm j at time t
11 ω : Persistence of abnormal earnings
Giner and Iniguez (2006) state that non segregation of abnormal earnings in terms of sign lead
to the utilization of negative abnormal earnings as the same as the positive ones in calculations. While
the investors’ interpretation of negative abnormal earnings differs from the positive ones because of
two following reasons:
1 It was computed each year as the median of the ratio: ,tax profit/profit before taxes, for all firms in the sample.
65 International Research Journal of Finance and Economics - Issue 36 (2010)
1. Investors do not generally consider the negative abnormal earnings in their calculations
because they hope to solve the current problems of firm and the future profitability in their
calculations.
2. Loss making firms during winding-up are often valuated under liquidation option and,
therefore, the least return of investment in firms’ share is fixed and the current losses have no
effect thereon.
On the same basis, they present their model No. 2 (the second model of this research) as
follows:
, 1 11 , 11 , , +1
+
+ = + + j t
a
j t t
a
j t
a
j t x ω x ω D x ε (11)
Where:
a
j t x , : abnormal earnings of firm j at time t
11 ω : Persistence of negative abnormal earnings
+ + 11 11 ω ω : Persistence of positive abnormal earnings
j t D , : Dummy variable for firm j at time t( 1 , = j t D if 0 , a >
j t x and 0 , = j t D otherwise
They state that since the negative abnormal earnings are temporary, the coefficient of these
earnings should be significant and varies from 1 (close to zero) while it is expected that this coefficient
should be, close to 1 for positive abnormal earnings. Therefore, the segregation of abnormal earnings
in terms of their sign will improve the results.
In the third model of this research, it has been paid to Feltham-Ohlson model and, as the same
as the first model, the sing of abnormal earnings has not been taken into account. The relations relevant
to this model are as follows.
, +1 11 , 12 , 1 , +1 = + + j t j t
a
j t
a
j t x ω x ω bV ε (12)
Where:
, +1 22 , 2 , +1 = + j t j t j t bV ω bV ε
a
j t x , : Abnormal earnings of firm j at time t
11 ω : Persistence of abnormal earnings
12 ω : Conservatism parameter( 0 12 w > )
22 ω : Growth rate in the book value of equity parameter
The fourth model is the same as the third model having been adjusted by the sign of abnormal
earnings and is expressed as follows.
, 1 11 , 11 , 12 , 12 , , +1
+ +
+ = + + + + j t j t j t
a
j t t


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