Off-campus UNL users: To download campus access dissertations, please use the following link to log into our proxy server with your NU ID and password. When you are done browsing please remember to return to this page and log out.
Non-UNL users: Please talk to your librarian about requesting this dissertation through interlibrary loan.
An empirical investigation of the quality of accounting numbers: A cross-country context
Abstract
Ohlson (1991) and Feltham and Ohlson (1993) provide two different but equivalent formulations of stock price. First, the theoretical stock price equals book value adjusted for the present value of future expected abnormal earnings. Second, the stock price is a function of book value, abnormal earnings, and operating assets. Based on these models, this study examines the differences in the quality of accounting numbers in six countries: the United States (US), the United Kingdom (UK), Japan, Canada, France, and Germany. According to the first model, current price-to-book (PB) ratio predicts future return-on-equity (ROE) better than current ROE does. Only the French sample weakly supports the hypothesis. The samples for the US, Canada, and Germany exhibit the dominance of ROE over PB in predicting future ROEs. The second model predicts that goodwill is an increasing function of the persistence of abnormal earnings and the degree of understatement of operating assets. The US and UK samples support the hypotheses. The Japanese, German, and French samples do not support the hypotheses. This study also provides the ranking of the quality of accounting numbers among the six countries in three dimensions of earnings quality: (i) the degree of accounting conservatism, (ii) persistence of earnings, and (iii) the strength of the relationship between unrecorded goodwill and abnormal earnings. An overall rank for each country is provided based on the rank scores in each earnings quality dimension. The UK ranks the highest in each dimension of earnings quality and in overall ranking. This study contributes to the financial statement analysis literature in two ways. First, the results of this study provide insights into the empirical validity of the accounting valuation model proposed by Ohlson (1991) and Feltham and Ohlson (1993). Second, the results show that there are substantial differences in the quality of accounting numbers in different countries. One limitation of this study is that it assumes the quality of accounting numbers for firms in each country to be the same.
Subject Area
Accounting
Recommended Citation
Lee, Kangil, "An empirical investigation of the quality of accounting numbers: A cross-country context" (1995). ETD collection for University of Nebraska-Lincoln. AAI9538641.
https://digitalcommons.unl.edu/dissertations/AAI9538641