IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v56y2024i11p1327-1345.html
   My bibliography  Save this article

Comparisons of residual income model and growth value model

Author

Listed:
  • I-Cheng Yeh

Abstract

Both the Residual Income Model (RIM) and Growth Value Model (GVM) combine the income-based approach and asset-based approach, and blend with the market-based approach, which employs regression analysis and market data to determine parameters in the models. Hence, they have more comprehensiveness than most approaches in the literature. The theoretical and empirical comparisons of RIM and GVM may have profound meaning to stock intrinsic value. The theoretical comparison shows that the ROE-P/B relationship is linear in RIM and power in GVM. When ROE equals the required return rate, whosever P/B is 1.0. When the ROE is small, the P/B estimated by GVM is still greater than 0; however, it may be negative by RIM, which is not reasonable. In a normal range (0 ~ 20%) of ROE, the two curves are rather close to each other. The empirical study showed that the GVM can more reasonablly fit the market data, especially when the ROE is rather small or great.

Suggested Citation

  • I-Cheng Yeh, 2024. "Comparisons of residual income model and growth value model," Applied Economics, Taylor & Francis Journals, vol. 56(11), pages 1327-1345, March.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:11:p:1327-1345
    DOI: 10.1080/00036846.2023.2176448
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2023.2176448
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2023.2176448?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:56:y:2024:i:11:p:1327-1345. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.