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Accounting Valuation and Cost of Equity Capital Dynamics

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  • Jeffrey L. Callen

Abstract

type="main"> This paper provides a selective survey of Ohlson and Vuolteenaho-type accounting valuation models. The focus is on the valuation, return, and cost of capital dynamics of these models. Emphasis is placed primarily on variations of these models that incorporate risk aversion, parameter uncertainty, and/or time-varying costs of equity. Empirical papers that address the dynamics of these models are also surveyed.

Suggested Citation

  • Jeffrey L. Callen, 2016. "Accounting Valuation and Cost of Equity Capital Dynamics," Abacus, Accounting Foundation, University of Sydney, vol. 52(1), pages 5-25, March.
    • Handle: RePEc:bla:abacus:v:52:y:2016:i:1:p:5-25
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    File URL: http://hdl.handle.net/10.1111/abac.12070
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    References listed on IDEAS

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    1. Tuomo Vuolteenaho, 2002. "What Drives Firm‐Level Stock Returns?," Journal of Finance, American Finance Association, vol. 57(1), pages 233-264, February.
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    3. Stephen E. Christophe, 2002. "The Value of U.S. MNC Earnings Changes from Foreign and Domestic Operations," The Journal of Business, University of Chicago Press, vol. 75(1), pages 67-94, January.
    4. Jeffrey L. Callen, 2009. "Shocks to Shocks: A Theoretical Foundation for the Information Content of Earnings," Contemporary Accounting Research, John Wiley & Sons, vol. 26(1), pages 135-166, March.
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    7. John H. Cochrane, 2011. "Presidential Address: Discount Rates," Journal of Finance, American Finance Association, vol. 66(4), pages 1047-1108, August.
    8. John Y. Campbell & Christopher Polk & Tuomo Vuolteenaho, 2010. "Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 305-344, January.
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    10. Dechow, Patricia M. & Hutton, Amy P. & Sloan, Richard G., 1999. "An empirical assessment of the residual income valuation model1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 1-34, January.
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    16. Long Chen & Xinlei Zhao, 2009. "Return Decomposition," The Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 5213-5249, December.
    17. Jeffrey L. Callen & Dan Segal, 2004. "Do Accruals Drive Firm‐Level Stock Returns? A Variance Decomposition Analysis," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 527-560, June.
    18. Yan, Shu, 2011. "Jump risk, stock returns, and slope of implied volatility smile," Journal of Financial Economics, Elsevier, vol. 99(1), pages 216-233, January.
    19. James Claus & Jacob Thomas, 2001. "Equity Premia as Low as Three Percent? Evidence from Analysts' Earnings Forecasts for Domestic and International Stock Markets," Journal of Finance, American Finance Association, vol. 56(5), pages 1629-1666, October.
    20. Mark Tippett & Teresa Warnock, 1997. "The Garman-Ohlson Structural System," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 1075-1099.
    21. Garman, Mb & Ohlson, Ja, 1980. "Information And The Sequential Valuation Of Assets In Arbitrage-Free Economies," Journal of Accounting Research, Wiley Blackwell, vol. 18(2), pages 420-440.
    22. Callen, Jeffrey L & Morel, Mindy, 2001. "Linear Accounting Valuation When Abnormal Earnings Are AR(2)," Review of Quantitative Finance and Accounting, Springer, vol. 16(3), pages 191-203, May.
    23. Jeffrey L. Callen & Ole‐Kristian Hope & Dan Segal, 2005. "Domestic and Foreign Earnings, Stock Return Variability, and the Impact of Investor Sophistication," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 377-412, June.
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    Cited by:

    1. Yaniv Konchitchki, 2016. "Accounting Valuation and Cost of Capital Dynamics: Theoretical and Empirical Macroeconomic Aspects. Discussion of Callen," Abacus, Accounting Foundation, University of Sydney, vol. 52(1), pages 26-34, March.
    2. Dimos Andronoudis & Diogenis Baboukardos & Fanis Tsoligkas, 2024. "How the information content of integrated reporting flows into the stock market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 1057-1078, January.
    3. Yi Jiang & Stewart Jones, 2018. "Corporate distress prediction in China: a machine learning approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(4), pages 1063-1109, December.
    4. Pengguo Wang, 2018. "Future Realized Return, Firm‐specific Risk and the Implied Expected Return," Abacus, Accounting Foundation, University of Sydney, vol. 54(1), pages 105-132, March.
    5. Stewart Jones & Nurul Alam, 2019. "A machine learning analysis of citation impact among selected Pacific Basin journals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(4), pages 2509-2552, December.
    6. Stephen Penman, 2016. "Valuation: Accounting for Risk and the Expected Return," Abacus, Accounting Foundation, University of Sydney, vol. 52(1), pages 106-130, March.
    7. Dimos Andronoudis & Diogenis Baboukardos & Fanis Tsoligkas, 2024. "How the information content of integrated reporting flows into the stock market," Post-Print hal-04389552, HAL.
    8. Demetris Christodoulou & Colin Clubb & Stuart Mcleay, 2016. "A Structural Accounting Framework for Estimating the Expected Rate of Return on Equity," Abacus, Accounting Foundation, University of Sydney, vol. 52(1), pages 176-210, March.
    9. Guilherme Belloque & Martina K Linnenluecke & Mauricio Marrone & Abhay K Singh & Rui Xue, 2021. "55 years of Abacus: Evolution of Research Streams and Future Research Directions," Abacus, Accounting Foundation, University of Sydney, vol. 57(3), pages 593-618, September.

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