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Review of Quantitative Finance and Accounting

Erschienen in:

01.08.2011 | Original Research

Endogenous problems in cross-sectional valuation models based on accounting information

verfasst von: L. A. Gil-Alana, R. Iniguez-Sanchez, G. Lopez-Espinosa

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 2/2011

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Abstract

The main purpose of this paper is to deal with the analysis of the scale effect in the value-relevance of accounting numbers. We examine the impacts of widely used deflators on the adjustment of scale effect. We find that most of the usual deflators employed in the literature generate endogeneity problems. In this paper we recommend the use of exogenous deflator such as the number of employees in market-based accounting research models. This alternative deflator produces, at least for the USA and Canada data, slightly better statistical results than other (endogenous) deflators such as the market value, the book value of equity, or the total assets.

Vorheriger Artikel Australia’s equity home bias and real exchange rate volatility

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Fama and French (1995) used this simple model to establish the relation between book-to-market-equity and expected stock return, and between book-to-market-equity and earnings on book equity.

Note that if we do not consider growth, the conclusions remain unaltered.

Note that the number of observations of each regression is different due to the different data availability of Compustat Global Vantage. However the sample size is large enough to ensure correct inference. In fact, we have repeated the study decreasing sample size (by using only observations with complete data of all necessary variable). The tenor of the results remains unaltered.

Similar results are obtained when we construct portfolios by market value.

Similar results are obtained in market value portfolios.

We also computed the mean values of the entire pool of (absolute) studentized residuals and the results remain unaltered.

We use bootstrapping because, for each regression, we have only 9 observations, as for each deflator we use annual means. This technique allows approximating the distribution probability of the data. However as we are using simulated data, not real data, this is a limitation that could affect the results presented in Table 7.

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Titel: Endogenous problems in cross-sectional valuation models based on accounting information
verfasst von: L. A. Gil-Alana
R. Iniguez-Sanchez
G. Lopez-Espinosa
Publikationsdatum: 01.08.2011
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 2/2011
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-010-0203-2

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