Dirty Surplus Accounting Flows and Valuation Errors

43 Pages Posted: 17 Oct 2006

See all articles by Helena Isidro

Helena Isidro

ISCTE-IUL Instituto Universitario de Lisboa

John O'Hanlon

Lancaster University Management School

Steven Young

Lancaster University - Department of Accounting and Finance

Abstract

For France, Germany, the U.K. and the U.S. for the period from 1994 to 2001, this study explores empirically the association between valuation errors from a standard empirical application of the residual income valuation model and violations of the clean surplus relationship (dirty surplus accounting flows). Motivated by concern that the effect of dirty surplus accounting on the applicability of accounting-based valuation models might vary across accounting regimes, the study also documents differences across pairs of countries in the relationship between valuation errors and dirty surplus flows. The study finds some weak evidence of predicted relationships between valuation errors and dirty surplus flows in the U.S., but finds little evidence of such relationships elsewhere. There is some limited evidence of cross-country difference in the relationship between valuation errors and dirty surplus flows, mostly involving the U.S.

Suggested Citation

Isidro, Helena and O'Hanlon, John F. and Young, Steven, Dirty Surplus Accounting Flows and Valuation Errors. Abacus, Vol. 42, No. 3-4, pp. 302-344, September 2006, Available at SSRN: https://ssrn.com/abstract=937414 or http://dx.doi.org/10.1111/j.1467-6281.2006.00203.x

Helena Isidro (Contact Author)

ISCTE-IUL Instituto Universitario de Lisboa

Av. das For├žas Armadas
Lisboa, 1649-026
Portugal

John F. O'Hanlon

Lancaster University Management School ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+44 1524 593631 (Phone)
+44 1524 847321 (Fax)

Steven Young

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+441 5245-94242 (Phone)
+441 5248-47321 (Fax)

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