A Theory of Accounting Relativity: Double-Entry Bookkeeping as a Transformation of Coordinates

Abstract:     
The dividend discount model is a special case of the residual income model and the fundamental value of the firm is a scalar invariant under any accounting system with the clean-surplus. Under double-entry bookkeeping, any accounting system is relative concerning valuation in the sense that the fundamental value is a scalar invariant. A dividends stream or any accounting sequence has no a priori conceptual as well as empirical grounds to claim its primacy over others in valuation.

Number of Pages in PDF File: 14

Keywords: Accounting Relativity, Dividend Discount Model, Invariance, Residual Income, Valuation

JEL Classification: G12, M41

working papers series