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FRS3 earnings, Headline earnings, and accounting-based valuation models

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  • Stephen Lin
  • Martin Walker

Abstract

This paper examines the joint and incremental explanatory value of book value per share and two measures of earnings per share (Headline and FRS3 EPS) for the cross-section of UK share prices. We find that Headline EPS explains a significant proportion of cross-sectional variation in share price. Book value per share contributes incremental explanatory value to the model, which is both statistically and economically significant. However, the incremental explanatory value contributed by FRS3 EPS is negligible. We conclude that FRS3 should be revised to encourage firms to report something like Headline EPS on a standardised basis in addition to FRS3 EPS.

Suggested Citation

  • Stephen Lin & Martin Walker, 2000. "FRS3 earnings, Headline earnings, and accounting-based valuation models," Accounting and Business Research, Taylor & Francis Journals, vol. 30(4), pages 299-306.
    • Handle: RePEc:taf:acctbr:v:30:y:2000:i:4:p:299-306
    DOI: 10.1080/00014788.2000.9728947
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    References listed on IDEAS

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    1. William P. Rees, 1997. "The Impact of Dividends, Debt and Investment on Valuation Models," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7‐8), pages 1111-1140, September.
    2. William P. Rees, 1997. "The Impact of Dividends, Debt and Investment on Valuation Models," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 1111-1140.
    3. Norman C. Strong, 1997. ""Discussion of" The Impact of Dividends, Debt, and Investment on Valuation Models," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7&8), pages 1141-1145.
    4. 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.
    5. Norman C. Strong, 1997. "Discussion of The Impact of Dividends, Debt, and Investment on Valuation Models," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7‐8), pages 1141-1145, September.
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    Cited by:

    1. Beattie, Vivien, 2005. "Moving the financial accounting research front forward: the UK contribution," The British Accounting Review, Elsevier, vol. 37(1), pages 85-114.
    2. Steven Young, 2014. "The drivers, consequences and policy implications of non-GAAP earnings reporting," Accounting and Business Research, Taylor & Francis Journals, vol. 44(4), pages 444-465, August.
    3. Martin Walker & Evagelia Louvari, 2003. "The determinants of voluntary disclosure of adjusted earnings per share measures by UK quoted companies," Accounting and Business Research, Taylor & Francis Journals, vol. 33(4), pages 295-309.
    4. Pelham Gore & Peter Pope & Ashni Singh, 2007. "Earnings management and the distribution of earnings relative to targets: UK evidence," Accounting and Business Research, Taylor & Francis Journals, vol. 37(2), pages 123-149.
    5. Stephen Lin, 2006. "Testing the Information Set Perspective of UK Financial Reporting Standard No.3: Reporting Financial Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7‐8), pages 1110-1141, September.
    6. Khaled Hussainey & Thomas Schleicher & Martin Walker, 2003. "Undertaking large-scale disclosure studies when AIMR-FAF ratings are not available: the case of prices leading earnings," Accounting and Business Research, Taylor & Francis Journals, vol. 33(4), pages 275-294.
    7. Schleicher, Thomas & Hussainey, Khaled & Walker, Martin, 2007. "Loss firms’ annual report narratives and share price anticipation of earnings," The British Accounting Review, Elsevier, vol. 39(2), pages 153-171.
    8. Laura Mervelskemper & Daniel Streit, 2017. "Enhancing Market Valuation of ESG Performance: Is Integrated Reporting Keeping its Promise?," Business Strategy and the Environment, Wiley Blackwell, vol. 26(4), pages 536-549, May.

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