Page 69 - DUT ICGA Abstract Book

THE EXPLANATORY VALUE OF INTRINSIC EQUITY VALUATION MODELS FOR SHARE PRICE VARIATIONS: A A A A SURVEY OF RECENT APPROACHES
Ronald Nhleko2 3 and Daniel P Schutte1
2 School of of Accounting
Sciences North-West University Potchefstroom South Africa 11 Hoffman Street Potchefstroom 2520 South Africa Corresponding author: School of Accounting
Sciences North-West University Potchefstroom South South Africa Africa 11 Hoffman Street Potchefstroom 2520 South South Africa Africa Phone: +2771 354 2457 E-mail: rnhleko@gmail com Abstract
Over the past six decades a a a a a a a a a considerable amount of research has been conducted to gain an improved understanding of of the explanatory ability of of intrinsic equity valuation models to to account for variations in in in equity share prices or or returns The accounting-based Ohlson residual income valuation framework has been a a a a a a a a a primary focus in this this research Meanwhile several variants of this this model have emerged the foremost of of which typically comprise the the decomposition of of the the residual income variable into substitute accounting earnings earnings variables such as as the traditional bottom-line earnings earnings variable variable or or as as witnessed more recently alternative earnings earnings performance measures of which earnings earnings before interest tax depreciation and amortisation (EBITDA) is is a a a a a a a a a a a particular case in in point However there appears to be a a a a a a a a a a a lack of consensus about both the the the variables of interest and the the the most appropriate model to define the the the predicted interconnections between accounting values and share share prices or share share price price returns In this light the aim of this study was to to review the the approaches and and evidence pertaining to to the the Ohlson model and and recent variants thereof that are based either on on traditional or or alternative earnings performance measures with a a a a a a a a a a a view to answering the the following research questions: 1
Which econometric model results in in in the the best explanation of the association between accounting information and share prices? 2 Consequently which variable when combined with with equity book values seems to provide the most persuasive evidence of association with with equity share prices: EBITDA earnings or residual income? The results revealed that the Ohlson (1995) model model the the Collins et al al al (1997) variation and the the recent EBIDTA model model yield equally valid demonstrations of of the the association of of accounting information with share price variations Consequently depending on on on on on the the choice of model all three variables EBITDA earnings and residual income appear to possess an an equal amount of explanatory power to to account for variations in equity share prices KEYWORDS: EBITDA equity valuation valuation Ohlson (1995) residual income valuation valuation framework value relevance alternative performance measures fundamental valuation valuation intrinsic equity valuation valuation JEL classification codes: M41 G10 G12 G14 G11 G32
Book of Abstracts 67