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Information dynamics, dividend displacement, conservatism, and earnings measurement: a development of the Ohlson (1995) valuation framework

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  • Colin D. B. Clubb

    (King’s College London)

Abstract

This paper extends the Ohlson (Contemp Account Res 11, 661–687, 1995) equity valuation framework by demonstrating that dividend displacement continues to hold when dividends have a positive forecast coefficient in the linear abnormal earnings dynamic. The analysis demonstrates that such a predictive role for dividends implies a positive association between cum div book value of equity and the present value of expected abnormal earnings, consistent with both dividend displacement and accounting conservatism. While a signaling role for dividends is ruled out, a link between dividends, expected performance, and equity value is, however, demonstrated. The paper also considers a linear information model where an undefined variable replaces realized abnormal comprehensive earnings as an indicator of future performance. The role of this variable as a predictor of future abnormal comprehensive earnings is highlighted and the special case where it corresponds to recurring abnormal earnings is considered. This latter case provides useful implications for implementation of asset revaluations.

Suggested Citation

  • Colin D. B. Clubb, 2013. "Information dynamics, dividend displacement, conservatism, and earnings measurement: a development of the Ohlson (1995) valuation framework," Review of Accounting Studies, Springer, vol. 18(2), pages 360-385, June.
    • Handle: RePEc:spr:reaccs:v:18:y:2013:i:2:d:10.1007_s11142-012-9211-x
    DOI: 10.1007/s11142-012-9211-x
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    References listed on IDEAS

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    1. James A. Ohlson & Beate E. Juettner-Nauroth, 2005. "Expected EPS and EPS Growth as Determinantsof Value," Review of Accounting Studies, Springer, vol. 10(2), pages 349-365, September.
    2. James A. Ohlson, 2005. "On Accounting-Based Valuation Formulae," Review of Accounting Studies, Springer, vol. 10(2), pages 323-347, September.
    3. Andrew W. Stark, 1997. "Linear Information Dynamics, Dividend Irrelevance, Corporate Valuation and the Clean Surplus Relationship," Accounting and Business Research, Taylor & Francis Journals, vol. 27(3), pages 219-228, February.
    4. James A. Ohlson, 1999. "On Transitory Earnings," Review of Accounting Studies, Springer, vol. 4(3), pages 145-162, December.
    5. Feltham, GA & Ohlson, JA, 1996. "Uncertainty resolution and the theory of depreciation measurement," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 34(2), pages 209-234.
    6. Peter F. Pope & Pengguo Wang, 2005. "Earnings Components, Accounting Bias and Equity Valuation," Review of Accounting Studies, Springer, vol. 10(4), pages 387-407, December.
    7. Geoffrey Whittington, 2008. "Fair Value and the IASB/FASB Conceptual Framework Project: An Alternative View," Abacus, Accounting Foundation, University of Sydney, vol. 44(2), pages 139-168, June.
    8. Kenton K. Yee, 2005. "Aggregation, Dividend Irrelevancy, and Earnings†Value Relations," Contemporary Accounting Research, John Wiley & Sons, vol. 22(2), pages 453-480, June.
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    Keywords

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    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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