Constraints on Accrual Components of Earnings in Equity Valuation

50 Pages Posted: 9 Aug 2002

See all articles by Mary E. Barth

Mary E. Barth

Stanford University - Graduate School of Business

William H. Beaver

Stanford University

John R. M. Hand

University of North Carolina Kenan-Flagler Business School

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School

Date Written: June 2002

Abstract

In this study, we extend the findings of Barth, Beaver, Hand, and Landsman (1999) by providing empirical evidence that for three levels of disaggregated earnings, (1) the structure provided by the Feltham-Ohlson model aids in predicting equity market values, and (2) forecasting of equity market values based on firms partitioned into industry groupings is superior to constraining all firms to have the same model parameters. We also find that disaggregating earnings into cash flows and total accruals generally yields better forecasts of equity market values. However, the efficacy of further disaggregation of total accruals into its primary components for forecasting equity market values appears to be industry-specific.

JEL Classification: G12, M41

Suggested Citation

Barth, Mary E. and Beaver, William H. and Hand, John R. M. and Landsman, Wayne R., Constraints on Accrual Components of Earnings in Equity Valuation (June 2002). Available at SSRN: https://ssrn.com/abstract=319841 or http://dx.doi.org/10.2139/ssrn.319841

Mary E. Barth

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-9040 (Phone)
650-725-0468 (Fax)

William H. Beaver (Contact Author)

Stanford University ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4409 (Phone)
650-725-6152 (Fax)

John R. M. Hand

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3173 (Phone)
919-962-4727 (Fax)

Wayne R. Landsman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3221 (Phone)
919-962-4727 (Fax)

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