Analysis of the Residual Income Valuation and Abnormal Earnings Growth Models: A Practical Approach Using Analysts’ Forecasts

Revista de Contabilidade e Controladoria, v. 4, n.1, 2012

16 Pages Posted: 31 Jul 2015

See all articles by Jose Elias Feres de Almeida

Jose Elias Feres de Almeida

Federal University of Espirito Santo (UFES)

Gerlando Augusto Sampaio Franco de Lima

University of Illinois at Urbana-Champaign; University of São Paulo

Iran Siqueira Lima

University of São Paulo (USP)

José Roberto Securato

University of São Paulo (USP)

Date Written: March 01, 2012

Abstract

This paper revisits two valuation models based on accounting figures: the Residual Income Valuation (RIV) and Abnormal Earnings Growth (AEG). Our research design has two approaches: i) we demonstrate theoretical integration of both models; and ii) we show in a practical manner that models converge to the same results based on real data of analysts forecast consensus. We apply statistical tests on empirical data from analyst’s forecasts available on Thomson One Analytics database. We use information of 45 firms listed on the IBovespa segment from BMF&BOVESPA in 2008 with historical data from 2003 to 2007 and analysts’ projections from 2003 to 2010. Our results do not show a significant mean difference of the valuations, but those from the RIV model are more dispersed than those produced by the AEG model. Furthermore, our results are consistent with international evidences and present additional evidences of application of valuation models based on accounting information in Brazil. Our findings support the use of valuation models based on accounting figures by analysts, investors, rating agencies and regulators to provide additional analyses of firm’s future prospects.

Keywords: Residual Income Valuation, Abnormal Earnings Growth, Analysts’ Forecasts, Accounting Figures

JEL Classification: D46, D84, G12, G14, G15, G19, M40, M41, M49

Suggested Citation

Almeida, Jose Elias Feres de and Lima, Gerlando Augusto Sampaio Franco de and Lima, Iran Siqueira and Securato, José Roberto, Analysis of the Residual Income Valuation and Abnormal Earnings Growth Models: A Practical Approach Using Analysts’ Forecasts (March 01, 2012). Revista de Contabilidade e Controladoria, v. 4, n.1, 2012, Available at SSRN: https://ssrn.com/abstract=2637403

Jose Elias Feres de Almeida (Contact Author)

Federal University of Espirito Santo (UFES) ( email )

Av. Fernando Ferrari, n. 514, Goiabeiras
Centro de Ciências Jurídicas e Econômicas
Vitoria, Espírito Santo 29075-910
Brazil
+5527992248737 (Phone)

Gerlando Augusto Sampaio Franco de Lima

University of Illinois at Urbana-Champaign ( email )

86 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
2173006235 (Phone)
2173006235 (Fax)

University of São Paulo ( email )

Av. Prof. Luciano Gualberto 908
São Paulo, São Paulo 05508-900
Brazil
+551130915820 (Phone)

Iran Siqueira Lima

University of São Paulo (USP) ( email )

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

José Roberto Securato

University of São Paulo (USP) ( email )

Rua Luciano Gualberto, 315
São Paulo, São Paulo 14800-901
Brazil

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