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Comparison Of The Residual Income Valuation, Abnormal Earnings Growth And Free Cash Flow Models: An Empirical Study Of The Brazilian Capital Market

Author

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  • Eric Serrano Ferreira

    (Espirito Santense Integrate College)

  • Valcemiro Nossa

    (FUCAPE Business School)

  • Bruno Cesar Aurichio Ledo

    (FUCAPE Business School)

  • Arilda Magna Campanharo Teixeira

    (FUCAPE Business School)

  • Alexsandro Broedel Lopes

    (USP – University of São Paulo)

Abstract

This study compares the explanatory power of the residual income valuation (RIV), abnormal earnings growth (AEG) and free cash flow (FCF) models in the Brazilian capital market, through an empirical test to compare the three models, using data on companies listed on the BOVESPA. Each model was analyzed annually over the period from 1995 to 2002 by multiple linear regression. The results show that from 1995 to 1999 the RIV model had better explanatory power than the other two models, and from 2000 to 2002 the AEG and RIV models were the same, an indicator of the Brazilian market’s development in the more recent years of the study period. The FCF model had the least explanatory power in all the years analyzed. The results were confirmed by panel data analysis.

Suggested Citation

  • Eric Serrano Ferreira & Valcemiro Nossa & Bruno Cesar Aurichio Ledo & Arilda Magna Campanharo Teixeira & Alexsandro Broedel Lopes, 2008. "Comparison Of The Residual Income Valuation, Abnormal Earnings Growth And Free Cash Flow Models: An Empirical Study Of The Brazilian Capital Market," Brazilian Business Review, Fucape Business School, vol. 5(2), pages 143-162, May.
    • Handle: RePEc:bbz:fcpbbr:v:5:y:2008:i:2:p:143-162
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    References listed on IDEAS

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    Cited by:

    1. Pimentel, Renê Coppe & Aguiar, Andson Braga de, 2016. "O papel da persistência dos lucros na acurácia de avaliação e no horizonte temporal," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 56(1), January.

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