valuation properties of earnings, book value, and · pdf filevaluation properties of earnings,...

Valuation Properties of Earnings, Book Value, and Residual Income: The Case of Four Southeast Asian Countries

Kriengkrai Boonlert-U-Thai Ph.D. student

Gary Meek

Oscar S. Gellein/Deloitte & Touche Professor of Accounting

Shahrokh Saudagaran Arthur Andersen Alumni Centennial Professor and Head, School of Accounting

School of Accounting Oklahoma State University Stillwater, Oklahoma 74075

First Draft (in progress) September 2003

Draft only: Please do not quote without permission

1

Valuation Properties of Earnings, Book Value, and Residual Income: The Case of Four Southeast Asian Countries

Kriengkrai Boonlert-U-Thai

Gary Meek Shahrokh Saudagaran

Oklahoma State University Abstract

This study examines the valuation properties of earnings, book value, and residual

income of non-financial listed firms in Indonesia, Malaysia, Singapore, and Thailand over the period 1993 - 2002. We adopt the methodology in Ashbaugh and Olsson (2002) to explore the valuation properties of reported accounting information. We find that the residual income model is the dominant accounting-based valuation model and the earnings capitalization model is the least dominant accounting-based valuation model for all four countries after the 1997 financial crisis. Before the 1997 financial crisis, the earnings capitalization model was the dominant accounting-based valuation model for Indonesia, Singapore, and Thailand while the residual income model still remained the dominant model in Malaysia. The results challenge the finding of Ashbaugh and Olsson (2002) because their findings indicate that the earnings capitalization model is the dominant accounting-based valuation model when cross-listed firms report under International Accounting Standards. In addition, our findings indicate that the explanatory power of all valuation models dramatically dropped during the financial crisis. Key Words: Valuation Properties, Earnings, Book value, and Residual Income. Data Availability: The data used in this study are available from the first author at School of Accounting, Oklahoma State University, Stillwater, OK 74075, USA; phone (405) 332-0672; e-mail: [email protected].

2

I. Introduction

Recently, there has been an increasing integration of global capital markets and an

increasing acceptance of International Accounting Standards (IAS) by several countries.

Equity investors are concerned with firm valuation in order to support their investment

decisions. The relative performance of the earnings capitalization, book value, and

residual income valuation models are normally used by investors and in academic research

(Barker 1999; Penman and Sougiannis 1998; Myers 1999; Collins et al. 1999) to draw

inferences on the valuation properties of listed firms� earnings and book values. This

study examines the valuation properties of earnings, book value, and residual income of

non-financial listed firms in Indonesia, Malaysia, Singapore, and Thailand over the period

1993 - 2002. We select these four countries because IAS is the primary basis for

accounting standards in these countries and government support, in general, is strong for

the IAS-based accounting standards adopted in Indonesia, Malaysia, Singapore, and

Thailand (Saudagaran and Diga 1997).

We adopt the methodology in Ashbaugh and Olsson (2002) to explore the

valuation properties of reported accounting information. Ashbaugh and Olsson (2002) use

the related performance valuation models to explore the valuation properties of

International Accounting Standards and U.S. Generally Accepted Accounting Principles

earnings and book values reported by non-U.S., cross-listed firms trading in a common

equity market. They find evidence that the earnings capitalization model is the dominant

accounting-based valuation model when cross-listed firms report under International

Accounting Standards (IAS) and that the residual income model is the dominant

accounting-based valuation model when cross-listed firms report under U.S. Generally

Accepted Accounting Principles (U.S. GAAP). We extend their study in order to see

3

whether the earnings capitalization model is also the dominant accounting-based valuation

model in Southeast Asian countries adopting International Accounting Standards.

We find that the residual income model is the dominant accounting-based

valuation model and the earnings capitalization model is the least dominant accounting-

based valuation model for all four countries after the 1997 financial crisis. Before the

1997 financial crisis, the earnings capitalization model was the dominant accounting-

based valuation model for Indonesia, Singapore, and Thailand while the residual income

model still remained the dominant model in Malaysia. The results challenge the finding of

Ashbaugh and Olsson (2002) because their findings indicate that the earnings

capitalization model is the dominant accounting-based valuation model when cross-listed

firms report under International Accounting Standards. In addition, our findings indicate

that the explanatory power of all valuation models dramatically dropped during the

financial crisis.

The rest of the paper is organized as follows: Section II discusses institutional

background and related prior research. Section III outlines the research design. Section IV

presents sample selection. Results and conclusion are presented in sections V and VI,

respectively.

II. Institutional background and related prior research

Institutional background

The accounting systems in all four countries have recently developed. In general,

government support is strong for the IAS-based accounting standards adopted in

Indonesia, Malaysia, Singapore, and Thailand (Saudagaran and Diga 1997). Although

these four countries have recently adopted IAS and their financial reports may appear to

4

be similar, significant differences in national requirements and the resulting financial

statements still exist.

Accounting standards in Indonesia draw heavily from US accounting sources. In

September 1994, Indonesia adopted 21 International Accounting Standards (IAS),

renamed �Indonesia Financial Accounting Standards� and made them mandatory for all

publicly listed companies (Saudagaran and Diga 2000). Indonesia requirements are based

on accounting standards issued by the Indonesian Institute of Accountants (Nobes 2001).

Accounting standards in Malaysia and Singapore have historically looked to the

UK in setting their domestic accounting standards. After the IASC�s formation in 1973,

Malaysia and Singapore were the two earliest countries in the ASEAN to adopt IASB

standards and both announced their support for the IASB�s efforts in the mid-1970s

(Saudagaran and Diga 2000). Malaysian requirements are based on the Companies Act

1965 and on the standards of the Malaysian Accounting Standard Board. The Malaysian

Accounting Standards Board uses IAS�s as the basis for developing accounting standards.

Singapore requirements are mainly based on the Companies Act and standards issued by

the Institute of Certified Public Accountants of Singapore (Nobes 2001).

Accounting standards in Thailand draw heavily from US accounting sources.

Thailand�s Recommended Accounting Concepts and Principles are based generally on US

GAAP, although they also incorporate concepts from the UK and Germany (Saudagaran

and Diga 2000). Thai requirements are mainly based on the Accounting Act BE 2543.

The Act specifies the requirement that the financial statements are prepared in accordance

with accounting standards. Thai accounting standards (TAS) issued by the Institute of

Certified Accountants and Auditors are applicable for the purpose of this Act. Listed

companies are required by the Security Exchange Commission to adopt TAS and also its

specific rules (Nobes 2001). Thailand is also among the earliest adopters of IASB

5

standards. Currently, 17 of 23 Thai accounting standards are based on the IAS

(Saudagaran and Diga 2000).

Related prior research

Ashbaugh and Olsson (2002) used the relative performance of earnings

capitalization, book value, and the residual income valuation models to explore the

valuation properties of international accounting standards and U.S. generally accepted

accounting principles earnings and book value reported by non-U.S., cross-listed

companies trading in a common equity market. They found that the earnings


firms report under International Accounting Standards while the residual income model is

the dominant accounting-based valuation model when cross-listed firms report under U.S.

GAAP.

Barker (1999) examined the range of different valuation models that analysts and

fund managers use in practice, with an explicit focus on the role of dividend information

in equity valuation. He indicated that investors and other market participants use the

earnings capitalization, book value, and residual income valuation models in making

investment decisions.

Dechow et al. (1999) provided an empirical assessment of the residual income

valuation model proposed in Ohlson (1995). They pointed out that existing empirical

research relying on Ohlson�s model is similar to past research relying explicitly on the

dividend-discounting model. Their pricing tests indicated that stock prices partially reflect

the mean revision in residual income.

Myers (1999) implemented residual income valuation with linear information

dynamics as a method of estimating firm value based on expected future accounting

6

numbers and documented the necessity of using linear information models of the time

series of accounting numbers in valuation.

Penman and Sougiannis (1998) contrasted dividend discount techniques,

discounted cash flow analysis, and techniques based on accrual earnings when each is

applied with finite-horizon forecasts. They found that valuation errors are lower using

accrual earnings techniques rather than cash flow and dividend discounting techniques.

III. Research design

With the increase in global capital market integration, domestic and international

financial information users need to understand the valuation properties of accounting

variables in these Southeast Asian capital markets for their investment decision making.

Globally, we can see that International Accounting Standards (IAS) and U.S. Generally

Accepted Accounting Standards (U.S. GAAP) are two major accepted accounting

standards. After the economic crisis in 1997, the four countries in our study shifted the

emphasis of their accounting standards to International Accounting Standards rather than

U.S. GAAP. Ashbaugh and Olsson (2002) used the relative performance of the earnings

capitalization, book value, and residual income valuation models to explore the valuation

properties of International Accounting Standards and U.S. Generally Accepted

Accounting Principles earnings and book values reported by non-U.S., cross-listed firms

trading in a common equity market. They found that earnings capitalization model is the

dominant valuation model when the IAS analyses evaluate IAS firms� shares. We extend

their study in order to see whether the earnings capitalization model is also the dominant

accounting-based valuation model in Southeast Asian countries adopting the International

Accounting Standards. Since these four Southeast Asian Accounting Standards are based

on International Accounting Standards, our research questions are:

7

Q1: Are these three accounting-based valuation models relevant for non-financial listed

firms traded in Southeast Asian capital markets?

Q2: Is the earnings capitalization model the dominant accounting-based valuation

model for non-financial listed firms traded in Southeast Asian capital markets?

Davis-Friday et al. (2002) examined the value relevance of earnings and book

values in four Asian countries, Indonesia, South Korea, Malaysia, and Thailand, in the

period surrounding the Asian financial crisis. Their results indicated that the value

relevance of earnings in Indonesia and Thailand was significantly reduced during the

Asian financial crisis while the value relevance of book values increased. In Malaysia, the

value relevance of both earnings and book value decreased during the crisis. We extend

their study by examining whether the Asian financial crisis affected the valuation

properties of earnings, book value, and residual income valuation models of non-financial

institution listed firms traded in our selected countries. Our third research question is:

Q3: Did the Asian financial crisis affect the valuation properties of earnings, book

value, and residual income valuation models in non- financial listed firms traded in

Southeast Asian capital markets?

We use the following three models explored by Ashbaugh and Olsson (2002) to answer

research questions 1 and 2:

(EC) Pit = α + β1Eit + εit (1)

(BV) Pit = α + β1BVit + εit (2)

(RI) Pit = α + β1BVit + β2RIit + εit (3)

8

Where:

Pit = Monthly Stock price of firm i 60 days after the end of accounting period t.

Eit = Earnings of firm i for accounting period t.

BVit = Book value of equity of firm i at the end of accounting period t.

RIit = Residual income of firm i for accounting period t.

The explanatory power (adjusted R2) measures the strength of the association

between the accounting variable(s) and price. The residual income (RI) model assumes

clean surplus accounting and is defined as current net income minus the discount rate (r)

times book value at the beginning of the period. Our analysis requires the discount rate, r.

Prior research finds that the choice of discount rate does not affect cross-sectional analyses

of the RI model (Frankel and Lee 1998; Francis et al. 2001; Ashbaugh and Olsson 2002).

We also apply a 10 percent discount rate in our tabulated results. As a sensitivity analysis,

we apply discount rates ranging from 6 percent to 16 percent in calculating residual

income values, which are consistent with the methodology used in an Ashbaugh and

Olsson (2002) study.

In order to examining the effect of financial crisis on the valuation properties of

earnings, book value, and residual income valuation models, we use a dummy variable

representing financial crisis year and estimate the following regression models:

(EC) Pit = α + β1I +β2Eit +β3I*Eit + εit (4)

(BV) Pit = α + β1I +β2BVit +β3I*BVit + εit (5)

(RI) Pit = α + β1I +β2BVit +β3RIit +β4I*BVit +β5I*RIit + εit (6)

Where:

I = Dummy variable that equals one if year is 1997 (financial crisis year) and zero

otherwise.

9

IV. Sample selection

Our sample covers publicly traded firms in Indonesia, Malaysia, Singapore, and

Thailand across the period from 1993 to 2002. The stock prices and accounting data for

this study are from the Global Vantage Database. We restrict our sample to non-financial

firms that report earnings and book values and whose shares trade in these four Southeast

Asian capital markets. Combining all three accounting-based valuation models gives us

the total of 9,018 observations for earnings capitalization model, the total of 9,153

observations for book value model, and the total of 8,092 observations for residual income

model.

V. Results

Panel A of Table 1 reports the results of the relative performance of three

accounting-based valuation models when we pool all data. We find that all valuation

models have very low explanatory power. Adding dummy variables for year and country

into our three valuation models shows that the three valuation properties should be

evaluated by looking at specific years and country rather than using the pooled data of all

years and countries. Panel B of Table 1 reports the trend of explanatory power across

years and Panel C of Table 1 reports the trend of explanatory power across countries. We

find that the book value model is not relevant as their explanatory power is close to zero in

most years. Earnings capitalization and residual income valuation models are relevant and

their explanatory power has increased since the financial crisis year.

Table 2 reports the results of the relative performance of three accounting-based

valuation models for Indonesia. We find that the residual model is the dominant valuation

10

model in 2002 as the earnings explains 26 percent of price, the book value explains 85

percent of price, and the residual income explains 96 percent of price. Panel A of Figure 1

shows that the RI model is the 1st dominant valuation model and the BV model is the 2nd

dominant valuation model for Indonesia after the financial crisis year. The EC model used

to be the dominant valuation model for Indonesia before the financial crisis year and is the

least dominant valuation model after the crisis year.


valuation models for Malaysia. We find that the residual model and the book value

models are the first and second dominant valuation models in 2002 as the earnings

explains 30 percent of price, the book value explains 72 percent of price, and the residual

income explains 73 percent of price. Panel B of Figure 1 shows that the RI model is the

1st dominant valuation model and the BV model is the 2nd dominant valuation model for

Malaysia both before and after the financial crisis year.


valuation models for Singapore. We find that the residual model and the book value

models are the first and second dominant valuation models in 2002 as the earnings

explains 49 percent of price, the book value explains 75 percent of price, and the residual

income explains 77 percent of price. Panel C of Figure 1 shows that the RI model is the

1st dominant valuation model and the BV model is the 2nd dominant valuation model for

Singapore after the financial crisis year. The EC model used to be the dominant valuation

model for Singapore before the financial crisis year and is the least dominant valuation

model after the crisis year.


valuation models for Thailand. We find that the residual model is the dominant valuation

model in 2002 as the earnings explains 61 percent of price, the book value explains 57

11

percent of price, and the residual income explains 66 percent of price. Panel D of Figure 1

shows that the RI model is the 1st dominant valuation model and the BV model is the 2nd

dominant valuation model for Thailand after the financial crisis year. The EC model used

to be the dominant valuation model for Thailand before the financial crisis year and is the

least dominant valuation model after the crisis year (except the year 2002).

Using the dummy variable (I) to test whether the 1997 financial crisis affects the

valuation properties, we find that the explanatory power of all valuation models

dramatically decreased during the financial crisis. This finding is consistent with the

results of Table 1 and Figure 1.

Sensitivity Tests

The earnings capitalization model requires an income (earnings) measure.

Consistent with prior research, we used net income excluding extraordinary items in the

results reported above. As a sensitivity test, we re-ran the analysis using net income

including extraordinary items, with no change in results. These tests are shown in Panels

A, B, D, and D of Figure 2.

The residual income model requires a discount rate (r). Consistent with Ashbaugh

and Olsson (2002), we used a discount rate of 10 percent in the results reported above. As

a sensitivity test, we re-ran our analysis using discount rates of 6 and 16 percent, with no

change in results. These tests are shown in panels A, B, C, and D of Figure 3 (6 percent)

and in panels A, B, C, and D of Figure 4 (16 percent).

VI. Conclusion

We use a sample of non-financial listed firms in Indonesia, Malaysia, Singapore,

and Thailand to explore the valuation properties of earnings, book value, and residual

12

income valuation models. We find that the residual income model is the dominant

accounting-based valuation model and the earnings capitalization model is the least

dominant accounting-based valuation model for all four countries after the 1997 financial

crisis. Before the 1997 financial crisis, the earnings capitalization model was the

dominant accounting-based valuation model for Indonesia, Singapore, and Thailand while

the residual income model was the dominant model in Malaysia. The results challenge the

finding of Ashbaugh and Olsson (2002) because their findings indicate that the earnings


firms report under International Accounting Standards. In addition, our findings indicate

that the explanatory power of all valuation models dramatically dropped during the

financial crisis and the valuation properties should not be considered by pooled data.

Since there is difference in valuation properties of IAS-based valuation model across these

four countries, we should evaluate the valuation properties by considering specific years

and countries rather than using the pooled data of all years and countries.

13

References: Ashbaugh, H. and P. Olsson. 2002. An exploratory study of the valuation properties

of cross-listed firms� IAS and U.S. GAAP earnings and book value. The Accounting Review. Vol. 77, No. 1: 107-126.

Barker, R. (1999). The role of dividends in valuation models used by analysts and fund managers." European Accounting Review. Vol. 8: 195-218.

Chen, S. and J. Dodd. 2001. Operating Income, Residual Income and EVA: Which Metric Is More The value relevance?. Journal of Managerial Issues. Vol. XIII, No. 1: 65-86.

Collins, D., M. Pincus, and H. Xie. 1999. Equity valuation and negative earnings: The role of book value of equity. The Accounting Review. Vol. 74: 29-61.

Davis-Friday, P., L. Eng, and C. Liu. 2002. The effect of corporate governance on the valuation of book value and earnings during the Asian financial crisis. Working paper.

Dechow, P., A. Hutton, and R. Sloan. 1999. An empirical assessment of residual income valuation model. Journal of Accounting and Economics. Vol. 26: 1-34.

Easton, P. 1999. Security Returns and the value relevance of Accounting Data. Accounting Horizons. Vol. 13, No. 4: 399-412.

Francis, J., P. Olsson, and D. Oswald. 2001. Using mechanical earnings and residual income forecasts in equity valuation. Working paper, Duke University and London Business School.

Frankel, R., and C. Lee. 1998. Accounting valuation, market expectation, and cross- sectional stock returns. Journal of Accounting and Economics. Vol. 25: 283-319.

Goldman Sachs. 1999. Accounting/portfolio strategy. Goldman Sachs Investment Research (May 28): 1-40.

Graham, R., R. King, and J. Bailes. 2000. The value relevance of accounting information in Thailand during a Financial crisis: Thailand and the 1997 decline in the value of the Baht. Journal of International Financial Management and Accounting. Vol 11, No. 12: 84-107.

IAS Plus. (2002). Country Updates: Thailand. Deloitte Touche Tohmatsu. http://www.iasplus.com/country/thailand.htm Myers, J. 1999. Implementing residual income valuation with linear information

dynamics. The Accounting Review. Vol. 74: 1-28. Nobes, C. (2001). GAAP 2001: A survey of national accounting rules benchmarked

against international accounting standards. Ohlson, A. 1995. Earnings, book values, and dividends in security valuation.

Contemporary Accounting Research. Vol. 11: 661-687. Penman, S. and T. Sougiannis. 1998. A comparison of dividend, cash flows, and earnings

approaches to equity valuation. Contemporary Accounting Research. Vol. 15: 343- 383.

Saudagaran, S.M., and J.G. Diga. 1997. Financial reporting in emerging capital markets: Characteristics and policy issues. Accounting Horizons. Vol. 11: 41-64.

Saudagaran, S.M., and J.G. Diga. 1997. Accounting regulation in ASEAN: A choice between the global and regional paradigms of harmonization. Journal of International Financial Management and Accounting. Vol. 8: 1-32.

Saudagaran, S.M., and J.G. Diga. 2000. The institutional environment of financial reporting regulation in ASEAN. The International Journal of Accounting. Vol 35: 1-26.

Werner, R. 1998. Capital Market in Thailand: Issues and Opportunities. A study of financial markets. 106-134.

Table 1 Relative Performance of Accounting-Based Valuation Models

Model 1: Earnings Capitalization (EC) Pit = α + β1Eit + ε

Model 2: Book Value (BV) Pit = α + β1BVit + εit

Model 3: Residual Income (RI) Pit = α + β1BVit + β2RIit + εit

Using �Year� and �Country� dummy variables, we find that these three valuation properties should be evaluated by looking at specific years and country rather than using the pooled data of all years and countries. Variable Definitions: P is the price per share at fiscal year; E is the earnings per share at fiscal year; BV is the book value per share at fiscal year; RI is the residual income measured by using the formula: net income per share � 0.10 x (one year lagged book value per share)

Panel A: Valuation of All SampleIntercept Earnings Book Value Residual Income Adjusted R2 n

Earnings Capitalization Model 195.41 *** -0.01 *** 0.01 9018Book Value Model 198.90 *** 0.00 0.00 9153Residual Income Model 155.65 *** 4.35 *** -0.02 *** 0.01 8092

Table 1 (Continued) Relative Performance of Accounting-Based Valuation Models




Panel B: Valuation of All Sample by YearIntercept Earnings Book Value Residual Income Adjusted R2 n

Earnings Capitalization Model 195.41 *** -0.01 *** 0.01 90181993 120.96 *** 7.81 *** 0.64 3671994 -23.33 13.56 *** 0.93 5271995 86.68 5.65 *** 0.56 6031996 38.26 12.03 *** 0.98 6431997 215.67 *** 3.19 *** 0.09 10861998 154.49 *** -0.01 *** 0.12 11281999 254.27 *** -0.14 *** 0.10 11622000 200.73 *** 1.07 *** 0.12 11462001 65.33 *** 1.45 *** 0.27 11802002 -2.99 16.16 *** 0.64 1176

Book Value Model 198.90 *** 0.00 0.00 91531993 242.59 *** -1.11 0.00 3691994 232.13 10.16 0.00 5351995 346.30 ** -0.01 0.00 6121996 419.64 ** 0.04 0.00 6521997 193.02 *** 0.00 0.00 11031998 183.43 *** -1.23 *** 0.01 11451999 257.60 *** 2.59 0.00 11792000 166.03 *** 2.43 0.00 11682001 77.75 *** 0.90 0.00 11982002 10.24 0.87 ** 0.00 1192

Residual Income Model 155.65 *** 4.35 *** -0.02 *** 0.01 80921993 144.54 *** -1.05 7.21 *** 0.68 3061994 100.99 *** -0.24 4.48 *** 0.70 3671995 2.35 1.74 9.28 *** 0.93 5571996 132.04 * 2.33 10.74 *** 0.88 6021997 206.46 ** 8.35 ** 3.20 *** 0.09 6431998 163.65 *** -0.69 -0.01 *** 0.12 10971999 261.82 *** -0.70 -0.14 *** 0.10 11502000 213.93 *** -1.46 1.09 *** 0.12 11352001 68.19 *** -0.21 1.44 *** 0.27 11632002 3.26 0.63 *** 16.33 *** 0.64 1072

* = significant at p < .10, two-tailed test.** = significant at p < .05, two-tailed test.*** = significant at P < .01, two-tailed test.

16

Table 1 (Continued) Relative Performance of Accounting-Based Valuation Models




Panel C: Valuation of All Sample by CountryIntercept Earnings Book Value Residual Income Adjusted R2 n

Earnings Capitalization Model 195.41 *** -0.01 *** 0.01 9018Indonesia 1862.23 *** -0.01 ** 0.00 901Malaysia 3.91 *** 0.00 0.00 4120Singapore 1.45 *** 7.68 *** 0.29 2033Thailand 29.26 *** 2.61 *** 0.25 1964

Book Value Model 198.90 *** 0.00 0.00 9153Indonesia 1897.44 *** 6.04 0.00 912Malaysia 3.90 *** 0.00 0.00 4164Singapore 2.12 *** 0.00 *** 0.01 2078Thailand 33.45 *** 0.00 *** 0.13 1999

Residual Income Model 155.65 *** 4.35 *** -0.02 *** 0.01 8092Indonesia 1423.79 *** 207.84 *** -0.20 *** 0.15 809Malaysia 0.66 *** 1.43 *** 0.00 0.34 3668Singapore 0.97 *** 0.75 *** 0.02 0.34 1823Thailand 15.48 *** 0.66 *** 1.23 *** 0.36 1792


17

Table 2 Relative Performance of Accounting-Based Valuation Models: Indonesia





Valuation of All Sample by Year and CountryIndonesia

Intercept Earnings Book Value Residual Income Adjusted R2 nEarnings Capitalization Model 1862.23 *** -0.01 ** 0.00 901

1993 1227.88 *** 6.10 *** 0.58 371994 -337.36 13.65 *** 0.93 491995 202.80 9.28 *** 0.92 731996 303.10 11.97 *** 0.98 771997 1666.13 *** 3.60 *** 0.12 1381998 1115.27 *** -0.01 *** 0.11 1511999 1924.49 *** -0.13 *** 0.10 1502000 1593.57 *** 1.23 *** 0.17 1432001 916.43 *** 1.27 *** 0.25 792002 -1035.47 20.43 0.26 4

Book Value Model 1897.44 *** 6.04 0.00 9121993 526.06 * 1786.23 *** 0.63 371994 -604.29 1668.24 *** 0.88 501995 -138.14 1475.61 *** 0.92 731996 340.82 1329.14 *** 0.95 771997 739.30 *** 443.63 *** 0.49 1391998 1142.67 *** -13.69 *** 0.11 1521999 1591.18 *** 308.23 *** 0.23 1522000 1310.10 *** 43.32 ** 0.04 1462001 845.93 *** 122.63 *** 0.21 822002 -931.63 951.86 * 0.85 4

Residual Income Model 1423.79 *** 207.84 *** -0.20 *** 0.15 8091993 569.33 *** 1193.00 *** 2.78 *** 0.78 351994 874.42 *** 31.37 3.56 *** 0.69 371995 -244.97 803.00 *** 4.49 *** 0.95 631996 302.18 372.39 *** 8.80 *** 0.99 731997 1197.23 *** 435.40 *** 3.03 *** 0.61 771998 632.69 ** 469.75 *** -0.45 *** 0.21 1511999 1495.63 *** 482.63 *** 0.12 ** 0.24 1492000 1609.20 *** -4.40 1.26 *** 0.17 1432001 950.04 *** -20.46 1.40 *** 0.24 772002 -2076.43 793.53 9.50 0.96 4

18

Table 3 Relative Performance of Accounting-Based Valuation Models: Malaysia





Valuation of All Sample by Year and CountryMalaysia

Intercept Earnings Book Value Residual Income Adjusted R2 nEarnings Capitalization Model 3.91 *** 0.00 0.00 4120

1993 -1.07 57.53 *** 0.95 1491994 2.93 ** 25.77 *** 0.73 2191995 6.76 *** 0.00 0.00 2491996 8.76 *** -1.99 *** 0.05 2791997 2.55 *** 0.42 0.00 5041998 2.30 *** -1.07 *** 0.14 5121999 3.18 *** 0.91 *** 0.06 5232000 2.24 *** 3.38 *** 0.20 5202001 2.55 *** 1.80 *** 0.04 5502002 1.93 *** 5.81 *** 0.30 615

Book Value Model 3.90 *** 0.00 0.00 41641993 -9.76 *** 11.43 *** 0.83 1491994 -2.81 ** 5.69 *** 0.72 2221995 6.70 *** 7.35 0.00 2521996 2.05 ** 2.77 *** 0.45 2801997 1.14 *** 0.67 *** 0.16 5081998 1.82 *** 0.39 *** 0.14 5201999 0.87 *** 1.13 *** 0.61 5312000 0.48 *** 0.87 *** 0.65 5262001 0.08 1.19 *** 0.72 5552002 -0.20 1.18 *** 0.72 621

Residual Income Model 0.66 *** 1.43 *** 0.00 0.34 36681993 2.37 *** 2.80 *** 7.26 *** 0.54 1171994 -1.08 3.54 *** 19.78 *** 0.97 1471995 2.29 *** 1.98 *** -6.60 *** 0.62 2311996 1.98 ** 2.77 *** 0.00 0.45 2491997 0.78 ** 0.81 *** -1.56 *** 0.42 2811998 0.66 *** 0.55 *** -1.83 *** 0.54 5011999 0.73 *** 1.16 *** -0.31 *** 0.62 5212000 0.54 *** 0.88 *** 0.37 * 0.65 5182001 0.08 1.20 *** 0.17 0.72 5442002 -0.13 1.19 *** 0.60 ** 0.73 559

19

Table 4 Relative Performance of Accounting-Based Valuation Models: Singapore





Valuation of All Sample by Year and CountrySingapore

Intercept Earnings Book Value Residual Income Adjusted R2 nEarnings Capitalization Model 1.45 *** 7.68 *** 0.29 2033

1993 2.49 *** 11.63 *** 0.40 811994 1.73 *** 11.90 *** 0.36 1241995 2.20 *** 9.32 *** 0.28 1401996 1.83 *** 10.44 *** 0.33 1441997 1.27 *** 6.15 *** 0.30 1971998 1.42 *** 3.39 *** 0.15 2121999 1.26 *** 13.63 *** 0.53 2392000 0.86 *** 8.06 *** 0.37 2472001 1.21 *** 2.31 *** 0.04 3052002 0.55 *** 12.79 *** 0.49 344

Book Value Model 2.12 *** 0.00 *** 0.01 20781993 4.90 *** 0.03 * 0.03 821994 3.49 *** 0.03 ** 0.03 1271995 3.53 *** 0.01 0.00 1441996 3.39 *** 0.01 0.01 1501997 1.95 *** 0.01 ** 0.02 2041998 1.49 *** 0.00 *** 0.06 2181999 0.39 1.38 *** 0.49 2432000 -0.18 1.44 *** 0.50 2532001 0.16 0.94 *** 0.63 3102002 0.10 0.87 *** 0.75 347

Residual Income Model 0.97 *** 0.75 *** 0.02 0.34 18231993 2.89 *** 0.98 *** 9.00 *** 0.32 611994 2.51 *** 0.95 *** 8.90 *** 0.29 801995 2.25 *** 0.82 *** 7.03 *** 0.26 1281996 1.55 *** 1.07 *** 7.62 *** 0.34 1391997 0.93 ** 0.76 *** 4.42 *** 0.44 1421998 0.60 *** 0.63 *** 0.86 * 0.45 1991999 0.67 ** 1.51 *** 6.06 *** 0.55 2312000 -0.27 1.63 *** 1.75 ** 0.58 2402001 0.17 0.95 *** 0.00 0.63 3002002 0.13 1.05 *** 3.01 *** 0.77 303

20

Table 5 Relative Performance of Accounting-Based Valuation Models: Thailand





Valuation of All Sample by Year and CountryThailand

Intercept Earnings Book Value Residual Income Adjusted R2 nEarnings Capitalization Model 29.26 *** 2.61 *** 0.25 1964

1993 64.20 *** 5.06 *** 0.26 1001994 38.09 *** 7.08 *** 0.55 1351995 29.74 *** 6.67 *** 0.59 1411996 20.69 *** 6.36 *** 0.65 1431997 23.50 *** 1.64 *** 0.19 2471998 20.61 *** 0.86 *** 0.09 2531999 27.09 *** 1.01 *** 0.12 2502000 17.28 *** 1.92 *** 0.30 2362001 16.97 *** 2.76 *** 0.42 2462002 15.85 *** 5.16 *** 0.61 213

Book Value Model 33.45 *** 0.00 *** 0.13 19991993 4.90 *** 0.03 * 0.03 1011994 25.23 *** 1.33 *** 0.34 1361995 57.71 *** 0.00 -0.01 1431996 42.29 *** 0.00 -0.01 1451997 22.98 *** 0.00 *** 0.67 2521998 6.15 *** 0.59 *** 0.36 2551999 10.68 *** 0.58 *** 0.37 2532000 6.64 *** 0.47 *** 0.36 2432001 6.52 *** 0.56 *** 0.54 2512002 7.24 *** 0.77 *** 0.57 220

Residual Income Model 15.48 *** 0.66 *** 1.23 *** 0.36 17921993 63.17 *** 0.58 * 2.54 0.22 931994 26.09 *** 1.02 *** 5.07 *** 0.50 1031995 28.09 *** 0.64 *** 5.99 *** 0.57 1351996 13.87 *** 0.80 *** 5.23 *** 0.67 1411997 12.82 *** 0.50 *** 0.69 *** 0.28 1431998 6.56 *** 0.59 *** 0.14 0.36 2461999 12.91 *** 0.56 *** 0.46 *** 0.39 2492000 8.90 *** 0.44 *** 0.73 *** 0.39 2342001 8.13 *** 0.54 *** 0.98 *** 0.58 2422002 8.81 *** 0.71 *** 2.73 *** 0.66 206

21

Figure 1 Yearly Adjusted R2 of Relative Performance of Accounting-Based Valuation Models




Panel A: Indonesia

Adjusted R-Square: Indonesia

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

22

Figure 1 (Continued) Yearly Adjusted R2 of Relative Performance of Accounting-Based Valuation Models




Panel B: Malaysia

Adjusted R-Square: Malaysia

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

23





Panel C: Singapore

Adjusted R-Square: Singapore

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

24





Panel D: Thailand

Adjusted R-Square: Thailand

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

25

Sensitivity Test: (Using EPS including extraordinary items for equation 1) Figure 2 Yearly Adjusted R2 of Relative Performance of Accounting-Based Valuation Models




Panel A: Indonesia


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

26

Sensitivity Test: (Using EPS including extraordinary items for equation 1) Figure 2 (Continued) Yearly Adjusted R2 of Relative Performance of Accounting-Based Valuation Models




Panel B: Malaysia


-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

EBVRI

27





Panel C: Singapore


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

EBVRI

28





Panel D: Thailand


-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

29

Sensitivity Test: (Using discount rate = 6% for equation 03) Figure 3 Yearly Adjusted R2 of Relative Performance of Accounting-Based Valuation Models




Panel A: Indonesia


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

30

Sensitivity Test: (Using discount rate = 6% for equation 03) Figure 3 (Continued) Yearly Adjusted R2 of Relative Performance of Accounting-Based Valuation Models




Panel B: Malaysia


-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

31





Panel C: Singapore


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

32





Panel D: Thailand


-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

33

Sensitivity Test: (Using discount rate = 16% for equation 03) Figure 4 Yearly Adjusted R2 of Relative Performance of Accounting-Based Valuation Models




Panel A: Indonesia


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

34





Panel B: Malaysia


-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

EBVRI

35





Panel C: Singapore


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

EBVRI

36





Panel D: Thailand


-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Adj

uste

d R

-Squ

are

EBVRI

valuation properties of earnings, book value, and · pdf filevaluation properties of earnings,...

Documents