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Discussion of “Forward Versus Trailing Earnings in Equity Valuation”

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  • Peter Easton

    (University of Notre Dame)

Abstract

The focus of this discussion is on the empirical implications of Yee (2004, this issue). Yee's key contribution is the introduction of belief dependency into the model developed in Ohlson (1995), Feltham and Ohlson (1995, 1996), and Ohlson and Zhang (1998). Yee's primary conclusion is that accruals that do not incorporate beliefs about unobservable information lead to contemporaneous accounting data that are not sufficient for valuation but often belief-free accruals can lead to forward earnings that may be valuation sufficient. Yee (2004) provides an alternative theoretical model of the relation between firm value, trailing earnings, and forward earnings. This model may be used (1) to re-interpret the results of numerous empirical studies of the relation between market metrics, trailing earnings, and forward earnings, and (2) as the basis for framing further hypotheses and empirical studies.

Suggested Citation

  • Peter Easton, 2004. "Discussion of “Forward Versus Trailing Earnings in Equity Valuation”," Review of Accounting Studies, Springer, vol. 9(2), pages 331-336, June.
    • Handle: RePEc:spr:reaccs:v:9:y:2004:i:2:d:10.1023_b:rast.0000028193.89118.5e
    DOI: 10.1023/B:RAST.0000028193.89118.5e
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    References listed on IDEAS

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    1. Joy Begley & Gerald A. Feltham, 2002. "The Relation between Market Values, Earnings Forecasts, and Reported Earnings," Contemporary Accounting Research, John Wiley & Sons, vol. 19(1), pages 1-48, March.
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    6. Russell Lundholm & Linda A. Myers, 2002. "Bringing the Future Forward: The Effect of Disclosure on the Returns‐Earnings Relation," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 40(3), pages 809-839, June.
    7. Ohlson, JA & Zhang, XJ, 1998. "Accrual accounting and equity valuation," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 36, pages 85-111.
    8. Collins, Daniel W. & Maydew, Edward L. & Weiss, Ira S., 1997. "Changes in the value-relevance of earnings and book values over the past forty years," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 39-67, December.
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