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Stock Prices and Implied Abnormal Earnings Growth

Author

Listed:
  • Pascal Alphonse

    (LUMEN - Lille University Management Lab - ULR 4999 - Université de Lille)

  • Michel Levasseur

    (Université de Lille, Droit et Santé)

  • Hafiz Imtiaz Ahmad

    (NYIT - New York Institure of Technology)

Abstract

In terms of corporate valuation, the frequently used heuristics are Price Earnings or Price Earnings to Growth ratios. The development of a valuation model of type Abnormal Earnings Growth Model including modeling of expected rents evolution, conditions compatible with perfect competition, allows us to propose a testable relationship between market value of share, expected earnings per share in a year, its rate of growth in short term and a set of accounting variables composing a synthetic indicator of growth of company. Our results show that (1) expected increase in earnings per share are significantly associated with stock prices for developed countries, (2) but, the persistence of its effects is limited for emerging countries, (3) when the dynamics of growth are more complex, inclusion of synthetic variable of can make a significant correction term (4) and the implied cost of capital is significantly higher for emerging countries than for developed countries.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Pascal Alphonse & Michel Levasseur & Hafiz Imtiaz Ahmad, 2013. "Stock Prices and Implied Abnormal Earnings Growth," Post-Print hal-03591637, HAL.
    • Handle: RePEc:hal:journl:hal-03591637
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    References listed on IDEAS

    as
    1. Peter D. Easton & Gregory A. Sommers, 2007. "Effect of Analysts' Optimism on Estimates of the Expected Rate of Return Implied by Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 45(5), pages 983-1015, December.
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    3. Ohlson, James & Gao, Zhan, 2006. "Earnings, Earnings Growth and Value," Foundations and Trends(R) in Accounting, now publishers, vol. 1(1), pages 1-70, August.
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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