Influences on the value relevance of equity and net income in the UK

Abstract

Discusses the increasing use of valuation models in accounting and finance research, identifies potential difficulties in the conventional model and develops a simple version (which can deal with negative earnings) of the Edwards, Bell and Ohlson model, estimated from 1987‐1997 UK data. Finds it sensitive to firm size, dividend policy and return on equity; but not to capital structure. Compares consistency with other research and considers the underlying reasons for the results.