Revisiting the Reportedly Weak Value Relevance of Oil and Gas Asset Present Values: The Roles of Measurement Error, Model Misspecification, and Time Period Idiosyncrasy

53 Pages Posted: 28 Aug 2001

See all articles by Jeff P. Boone

Jeff P. Boone

University of Texas at San Antonio - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2001

Abstract

This paper investigates three potential explanations for the puzzlingly weak value relevance of oil and gas asset present values documented in prior research: measurement error, model misspecification, and time-period idiosyncrasy. I operationally define the magnitude of measurement error as the measurement error variance, estimated using an errors-in-variables two-stage regression model similar to that used by Barth (1991) and Choi et al. (1997). I find that (1) measurement error in the present value measure of oil and gas assets is on average less than the measurement error in the historical cost asset measure; (2) oil and gas assets measured at present value explain significantly more across-firm and across-time variation in stock prices than oil and gas assets measured at historical cost; and (3) model misspecification partially accounts for the puzzlingly weak reported value relevance of the present value measure in prior research.

Keywords: Measurement error; Reliability; Present value; Oil and gas

JEL Classification: G12, M41

Suggested Citation

Boone, Jeff P., Revisiting the Reportedly Weak Value Relevance of Oil and Gas Asset Present Values: The Roles of Measurement Error, Model Misspecification, and Time Period Idiosyncrasy (August 26, 2001). Available at SSRN: https://ssrn.com/abstract=281332 or http://dx.doi.org/10.2139/ssrn.281332

Jeff P. Boone (Contact Author)

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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