Clean Surplus Research Articles

Do board characteristics matter in the relationship between intellectual capital efficiency and firm value? Evidence from the Nigerian oil and gas downstream sector

PurposeThe purpose of this study is to investigate the moderating effects of board characteristics such as board size, chief executive officer duality, number of board meetings, and diversity, on the relationship between intellectual capital efficiency and firm value in the Nigerian oil and gas downstream sector.Design/methodology/approachWe collected time-series cross-sectional data from eight (8) downstream-sector oil and gas companies quoted on the Nigerian Exchange Group for the period 2004–2020. We analysed the data using Prais–Winsten regression with panel-corrected standard errors.FindingsOverall, our results show no significant direct relationship between the modified value-added intellectual coefficient and our two measures of firm value (Tobin’s Q and Price Earnings Ratio (PER)). However, the board size is found to moderate the intellectual capital efficiency–PER relationship significantly and negatively, whereas board diversity significantly positively moderates the association between the modified value-added intellectual coefficient and PER. Our multi-theory framework, which blends clean surplus, agency, stakeholder, and resource-based theories is found to be relevant in underpinning this study.Research limitations/implicationsThe research relies on 17-year panel data for eight downstream-sector oil and gas companies. Consequently, future research within intellectual capital efficiency in Nigeria could incorporate related sectors like midstream and upstream to enable comparability and expand generalization.Practical implicationPolicymakers may adopt the study findings to serve as a robust empirical base to demand improved board diversity as a catalyst for boosting the potency of the intellectual capital efficiency-firm value relationship.Originality/valueFirstly, to the best of our knowledge, this study is the pioneer attempt to use board characteristics as moderators of the relationship between intellectual capital efficiency and firm value. Secondly, we develop and use a novel theoretical framework that combines clean surplus, agency, stakeholder, and resource-based theories to underpin the study.

Value relevance of fair value hierarchy

Implementing accounting standard 68 (PSAK 68) adopted by IFRS 13 has brought changes in reflecting the market value previously explained by earnings per share and book value. This study investigates the relevance of fair value estimates as measured by the beta coefficient in firms in the financial industry. Specifically, the study focuses on whether the hierarchy of fair value financial liabilities and assets of the firms can affect the market value. This is quantitative research using archival methods. Sampling used a purposive sampling technique with a sample of 240 firm-years. The results showed that financial assets for level 2 (inputs other than quoted prices that were observable directly or indirectly) and level 3 (unobservable inputs generated by entities) positively had value relevance. All three hierarchy fair values of financial liabilities fair value negatively had value-relevance. These results indicate that investors pay higher financial assets for levels 2 and 3 than level 1. Meanwhile, the value relevance of financial assets and liabilities, as measured by R-squared, was relevant. This suggests that investors also trust that each hierarchy's fair value affects the market value. The findings of this study have significant implications for the advancement of the clean surplus theory. The theory posits that the company's market value can be explained by the fair value of financial assets using level 2 and level 3 as well as level 1, level 2, and level 3 financial liabilities.

Pricing and mispricing of accounting fundamentals: Global evidence

This paper extends the fundamentals-based valuation model in Nichols et al. (2017) to global, developed equity markets. The model is able to explain, on average, 81% of the cross-sectional share price variation among global stocks. To be applicable among international markets, actual cash-flow streams instead of clean surplus accounting figures are used to reflect the different importance of dividends and share repurchases around the world. Firms identified as undervalued outperform overvalued firms by 0.62% p.m. after controlling for size, book-to-market, operating profitability, investment, and momentum. This premium is further not explained by lottery-like stock preferences (MAX, idiosyncratic volatility, skewness), mispricing related variables (FSCORE, ΔXFIN), or stock issuances. In support of a mispricing related explanation, we detect a significant post publication return decline in the easily exploitable long portfolio leg comprising undervalued stocks. Together with our analysis on investor sentiment, portfolio transitions, and arbitrage asymmetry, we provide evidence that deviations of the share price from the model’s estimated value indicate actual mispricing and according returns are unlikely to be a compensation for risk exposure.

Relevansi Informasi Akuntansi terhadap Harga Saham pada Sektor Pertambangan

Abstract
 The purpose of this study is to determine the relevance of the values of accounting information to the company's stock price. Each company does not provide direct authority in providing company financial information to external groups, namely investors and creditors. Therefore, they rely on information in the form of financial reports provided by management. The theory used in this research uses clean surplus theory, market efficiency theory, signal theory, and value relevance theory. Clean surplus theory provides assumptions about how to show the market value of a company based on the values contained in the balance sheet and income statement. The theory of market efficiency explains the security prices with published accounting information have value relevance. Signal theory explains the signal from the sender (the owner of the information) which provides relevant information to the receiver that is useful for increasing decision-making power. Value relevance theory explains about an information that is used to explain or describe the values of the company. This study uses secondary data observation techniques obtained from the annual financial statements of mining companies listed on the Indonesia Stock Exchange for the period 2012-2021. This research using a non-probabilistic sampling technique, using a purposive sampling method where in this method the sampling uses certain criteria. The total sample obtained reached 120 research samples. The data analysis techniques used include descriptive statistical analysis, coefficient similarity test, classical assumption test, multiple linear regression analysis, F statistic test, t statistic test, and coefficient of determination test. The results showed that the F test (α = 0.05) obtained a significance value of 0.000 so it can be said that the test is acceptable. Based on the t test, the value of significance Book Value Per Share (BVPS), Investing Cash Flow (CFINV), and Financial Cash Flow (CFFIN) each of 0.000, 0.000 and 0.010 so that H2, H4, and H5 are accepted. However, the value of significance for the Earning Per Share (EPS) and Operating Cash Flow (CFOPS) variables each of 0.144 and 0.304 so that H1 and H3 are rejected.

Valuation of financial reporting quality: is it an issue in the firm’s valuation?

Purpose The purpose of this study is to test the determinant of financial report quality and its consequences to the company values.Design/methodology/approach This research is using a quantitative approach and testing a theory by formulating some hypotheses. The sample of this study is 85 go public companies listed in the Indonesia Stock Exchange, for a 5-year observation period from 2016 to 2020. Hence, it has a total of 425 observations. Data were analyzed using path analysis.Findings The results found that innate factors from financial reporting quality (FRQ) consists of dynamic factors (operation cycle and sales volatility) as well as static factors (firm’s size, FS). These factors help to achieve FRQ and are able to provide a positive response to the market. On the other hand, static factors (firm’s age, FA) and institution risk factors (leverage) are not able to produce FRQ. Thus, it cannot be considered as an economic decision maker for an investor.Practical implications Research implications include theoretical and practical implications. Theoretical implications prove that the valuation of clean surplus theory, which shows the market value of the company, is reflected in the components of the financial statements. This study also uses more than one quality of financial reporting. The practical implication of the research is that the research results are expected to provide information for the company’s management, to fulfill quality financial reporting and so that the market or investors will respond positively to these conditions. In addition, quality financial reporting information provides benefits for investors and capital market analysts (consisting of investors, brokers and market securities analysts) in determining investment decisions. The Financial Services Authority is also able to improve the implementation of corporate governance practices in Indonesia, through reform of the framework supervision of the financial services sector.Originality/value This research examines the determinants of FRQ and its consequences on firm’s value (FV). Innate factors proxies from FRQ include dynamic factors (operation cycle and sales volatility), static factors (FS and FA) and institution risk factors (leverage). A follow-up study on the value of the company because it shows the magnitude of the market response (financial statement users) on the quality of financial reporting, which is reflected in FV, the originality of this research is that the object of research is carried out in developing countries, specifically in Indonesia, because most of the previous research was carried out in developed countries.

Why Do Analysts use a Zero Forecast for Other Comprehensive Income?

Accounting theory and accounting researchers stress the importance of clean surplus accounting and comprehensive income to corporate valuation. However, casual observation suggests that sell‐side equity analysts routinely ignore other comprehensive income (OCI) in their forecasts and instead focus on forecasting earnings (before OCI). Using a sample of analyst reports, I first confirm that analysts normally omit forecasts of OCI or comprehensive income from their reports, consistent with analysts forecasting OCI as zero. I then predict and find that a zero forecast for OCI generally produces lower forecasting errors than alternative time‐series models, such as a random walk or AR(1) model, suggesting a rational reason why analysts take this approach. Finally, I predict and find that although analysts’ point forecasts of future OCI are usually zero, their implied cost of equity estimates are consistent with analysts forecasting a positive variance for OCI.

RELEVANSI NILAI INFORMASI AKUNTANSI DAN MODAL INTELEKTUAL PADA PERUSAHAAN INDEKS LQ45 DI BURSA EFEK INDONESIA

This study aims to analyze the value relevance of accounting which proxied with earnings per share (EPS) and book value per share (BVPS) as well as value relevance of intellectual capital information. The test was carried out on companies that are members of the LQ45 Index Listed on the Indonesia Stock Exchange (IDX) during the 2018-2020 period. The sample selection used purposive sampling technique. The data collection method in this research is the documentation method. Data were analyzed using multiple linear regression analysis. This study found that earnings per share (EPS) and book value per share (BVPS) as well as intellectual capital information has value relevance. This research can support signal theory, clean surplus theory, and resource based theory (RBT) related to the relevance of the value of earnings per share (EPS) and book value per share (BVPS) as well as intellectual capital information. The research has implications for all parties who need information regarding value relevance of earnings per share (EPS) and book value per share (BVPS) as well as intellectual capital information of companies incorporated in the LQ45 Index

Clean surplus model in equity valuation and financial data quality control

The article deals with the valuation of equity, in particular of shares that cannot be valued on the basis of market data. The clean surplus model is one of the models that allows the valuation of shares that are not marketable. The article presents the role of accounting and theoretical foundations, as well as the concept and assumptions of the clean surplus model. The model is related to financial research. In addition, the model can be used to confirm the reliability of the figures.

Bank stock valuation theories: do they explain prices based on theories?

PurposeThe objective of this paper is to investigate the validity of stock valuation theories and their forecasting ability by conducting an empirical study. It employs four most commonly used theories which are then tested using 19-year banking-firm market data. The usefulness of these models demonstrates with promising results.Design/methodology/approachThis paper conducts a multi-country study using the multi-model testing approach to evaluate validity of theories and forecast accuracy of banking firms. It employs four methodology models used in finance literature; (1) P/E multiples model, (2) accounting-information-based clean surplus model, (3) theoretical model based on Gordon and Shapiro (1956) method and (4) the Damodaran-Kottler Free Cash Flow or FCF theory based on discounting model.FindingsThe tests show that the four theories under tests have a significant fit with actual price formation. The explained variation ranges from 72 to 92%, so the explanatory power of the theories accounting for variations in bank prices over 19-year period is substantial. The models fit suggest that the P/E model has superior predictive power followed by the RIM, DDM and FCFE. These findings shed new lights on the relative performance of valuation models.Research limitations/implicationsThe study is limited in terms of the sample period size for 1999–2019. The availability of essential financial data prior to 2000 is very limited, so one can understand interpretation of statistical results under certain assumptions.Practical implicationsThe paper suggests that one-factor model is better than the two-factor model.Originality/valueThe work done in this paper is unpublished and original contribution to banking and finance literature and also not under consideration for publication in any other journal.

Valuation of short-lived firms following waves of new listings

PurposeThe survival rate of newly listed firms is low, and there is evidence of a surge of poorly performing new listed firms leading up to the crash of the dot.com bubble. The author investigates this phenomenon and analyzes investors' ability to understand the quality of accounting information and to adjust their expectations.Design/methodology/approachThe author employs the dividend discount model in conjunction with clean surplus accounting discussed by Ohlson (1995) to compare the value relevance of earnings and research and development (R&D) expenditures for short and longer listed National Association of Security Dealer Automated Quotations (NASDAQ) firms between 1980 and 2014. The author also uses univariate tests and logistic regression to analyze both recently listed and short-listed firms. In this analysis, the author compares the differences in investors' expectations for the first five years for both types of firms.FindingsThe author provides convincing evidence that markets clearly placed lower valuation weights on accounting earnings and R&D expenditures for short-listed firms on NASDAQ. Market participants originally had high expectations for these ventures. But, they gradually understood the lower quality of accounting information and adjusted their expectations downward.Originality/valueThe author’s results show that optimistic expectations along with easy equity financing created a surge of new listings. My analysis of the interplay between the quality of accounting information and investors' expectations indicates a negative spillover effect where investors are overoptimistic about firms that rode on waves of new listings backed by liberal financing. The author shows that analysis of Tobin's Q and negative earnings can separate ill-prepared from longer-listed firms.

The Role of Assumptions in Ohlson Model Performance: Lessons for Improving Equity-Value Modeling

In this paper, we test whether the short-run econometric conditions for the basic assumptions of the Ohlson valuation model hold, and then we relate these results with the fulfillment of the short-run econometric conditions for this model to be effective. Better future modeling motivated us to analyze to what extent the assumptions involved in this seminal model are not good enough approximations to solve the firm valuation problem, causing poor model performance. The model is based on the well-known dividend discount model and the residual income valuation model, and it adds a linear information model, which is a time series model by nature. Therefore, we adopt the time series approach. In the presence of non-stationary variables, we focus our research on US-listed firms for which more than forty years of data with the required cointegration properties to use error correction models are available. The results show that the clean surplus relation assumption has no impact on model performance, while the unbiased accounting property assumption has an important effect on it. The results also emphasize the uselessness of forcing valuation models to match the value displacement property of dividends.

Comparative study of Ohlson and cash flow discounting models in the prediction of the stock price

Two models derived from the dividend discount model attracted the attention of researchers: the residual income model (RIM) and the Ohlson model. These models are said to be dualistic since they combine both aspects of the economic and accounting vision. We propose, in our study, to test the performance of the dualistic evaluation model and to show the importance of accounting information. To do this, we will calculate the value of a listed company according to the actuarial valuation model, namely: the available cash flow discounting model (DCF) and the Ohlson model as a dualistic model. Then, we will determine, based on the expectation and the variance of the signed prediction error (SPE), the model that comes closest to the market price in the case of a Tunisian listed company. The results found in the Tunisian context show the superiority of the Ohlson model in the prediction of stock market prices. This model underlies the traditional belief that the company value is compounded of two main parts: the net value of the investment made in it (book value) and the present value of the period benefits (earnings) that together bring the “clean surplus” concept of the shareholders’ equity value. Specifically, Ohlson (1995) motivates the adoption of the historical price model in value relevance studies, which expresses value as a function of earnings and book values

On the relationship between intellectual capital efficiency and firm value: evidence from the Nigerian oil and gas downstream sector

We use a multi-theory framework which combines the lenses of clean surplus theory, resource-based theory and stakeholder theory to examine the relationship between measures of intellectual capital efficiency and firm market value. We employ Prais-Winsten regression with panel corrected standard errors to estimate our model. We find that while capital employed and structural capital efficiencies significantly and positively determine firm value, relational capital efficiency's positive effect appears mild. However, human capital efficiency appears to have no relationship with firm value. The significance of our findings is demonstrated by two key contributions to the literature. Firstly, this study is the first of its kind conducted in the Nigerian oil and gas industry. Secondly, our results provide further evidence in support of the clean surplus theory in its function of facilitating the role of accounting numbers in determining and explaining market values. These results are robust to an alternative time-series estimation at aggregate downstream sector level.

Pricing the common stocks in an emerging capital market: Comparison of the factor models

This study uses a cash-based profitability factor that is completely free from accounting accruals to test the five-factor and three other models against eight different market anomalies in Borsa Istanbul (BIST). According to the results, only beta (β) and book-to-market (B/M) effects are significant in BIST and the recently added profitability and investment factors improve neither the pricing nor the economic performances of the traditional three-factor model. Therefore, the clean surplus relationship cannot represent dividends and fail to explain common stocks’ pricing behavior in an emerging market setting. This paper provides the first evidence concerning the performance of the five-factor model which uses a profitability factor consistent with the theory underlying the model and shows that the recently added factors cannot improve the mean-variance efficiency of the three-factor model in an emerging market. The results are robust against several tests.

Assessing the potential of fuel cell-powered and battery-powered forklifts for reducing GHG emissions using clean surplus power; a game theory approach

This work aims at developing a game theory model for assessing the potential of fuel cell-powered and battery-powered forklifts for reducing GHG emissions in the province of Ontario, Canada. Two stakeholders are considered in the developed model: government and energy consumer. The energy consumer, which is assumed to be an industrial facility, operates 150 diesel forklifts but has the option of replacing them with fuel cell-powered and battery-powered forklifts. The government can encourage this replacement by allocating a percentage of Ontario's surplus power to the energy consumer at a discounted price. The discount is assumed to be exempting the energy consumer from paying the global adjustment. As a result, the energy consumer only pays the hourly Ontario electricity price when discounted power is available. Discounted electricity will decrease the cost of operating battery-powered and fuel cell-powered forklifts for the energy consumer and will encourage it to use those technologies instead of diesel forklifts. The government has an incentive to pursue such policy as the replacement of diesel forklifts with fuel cell-powered and battery-powered forklifts will reduce GHG emissions and subsequently, the social cost of carbon in the province. The reults of our modeling show that when the government does not allocate discounted power to the energy consumer, energy consumer does not reduce emissions and keeps using its 150 diesel forklifts. However, when the government provides 0.1% of Ontario's surplus power at each hour to the energy consumer at a discounted price, the energy consumer replaces 31 of its diesel forklifts with battery-powered forklifts. When the percentage of discounted power is 0.6% of Ontario's surplus power at each hour, energy consumer replaces 91 of its diesel forklifts with battery-powered forklifts and 54 of its diesel forklifts with fuel cellpowered forklifts.A policy of discounting surplus power to encourage replacing diesel forklifts with battery-powered and fuel cell-powered forklifts is shown to benefit both stakeholders in the system. Our analysis also shows that the deployment of both fuel-cell powered and battery-powered forklifts is effective in reducing GHG emissions in Ontario when surplus clean power is available. Battery-powered forklifts are more cost-effective when lower levels of discounted power are available; however, with an increase in the level of available discounted power, fuel cell-powered forklifts become more cost-effective technologies compared to battery-powered forklifts.

RELEVANSI NILAI LABA, NILAI BUKU EKUITAS, ARUS KAS OPERASI DAN DIVIDEN

The relevance of the value of accounting information presented must have the ability to explain the value of a company. Accounting information in the form of financial statements is said to be relevant if the information can be useful for investors in making decisions and the reaction of investors when information is announced that can be observed through stock price movements because stock prices reflect the value of the company. The theories used in this study are the theory of clean surplus, signaling theory, and theory of market efficiency. Based on the purposive sampling method obtained as many as 79 companies, with a total of 237 samples. The analysis techniques used are pooling test, classic assumption test, descriptive statistical test, F test, t-test, and test coefficient of determination. The data used is secondary data obtained from www.idx.co.id. The results showed that earnings, equity book values, operating cash flows, and dividends proved to have a positive influence on stock prices.Keywords : Earnings, book value of equity, operating cash flows, dividends, and stock price

On (r, g) and the Identity ROE = EP*MTB

The paper concerns concepts of equity valuation. Three primary financial ratios -- (forward) return on equity (ROE), (forward) earnings to price ratio (EP), and the (current) market-to-book ratio (MTB) – are connected to the standard valuation parameters, r = cost of equity (discount factor), and g = growth. The framework relies on a Gordon-Williams type of PVD model and combines it with an add-on steady-state growth requirement: Subject to clean surplus accounting, (the expected) earnings, dividends, and book values all grow at the same rate. This condition is adapted from “The Second Fundamental Law of Capitalism”, articulated by Piketty (2014). Applying these ideas result in a benchmark model: (i) a weighted average representation, EP = BTM*r + (1- BTM) *Div.Yield , and (ii) the inequalities 0 < BTM < 1 and Div.Yield < EP < r < ROE. Additional analysis relaxes the steady-state growth condition: the g-parameter is now replaced by forecasts of near future earnings growth which get updated as time passes. An empirical part of the paper evaluates whether the steady-state growth concept holds as an average for S&P 500 firms. Results are generally supportive.

Supply and Demand of Information for Firm Valuation

Abstract: The concept that accounting represents the information economics of the firm is a premise for the allocation of scarce resources. The analysis starts with a clean surplus model as a basis for the conceptual framework. Then, theoretical firm information economic supply-and-demand features are incorporated within a path diagram. This framework is investigated empirically with simultaneous regression equations and a structural equation model (SEM). Equations have explanatory power irrespective of the statistical methodology. And, a latent variable measure of internally generated intangible assets positively and significantly affects net income. Sensitivity subsamples investigate size and risk factors for robustness. Thus, the study expands the research frontier for SEM financial accounting research.

Transitioning electricity systems: The environmental benefits and economic cost of repurposing surplus electricity in non-conventional end users

Abstract A power grid with a lower global warming impact has the potential to extend its benefits to energy systems that conventionally do not utilize electricity as their primary energy source. This study presents the case of Ontario where the role of complementing policies in transitioning electricity systems is assessed. The policy cost to incentivize surplus low emission electricity via an established mechanism for the transportation sector has been estimated (Electric and Hydrogen Vehicle Incentive Program). It is estimated that the 9056 (4760 battery and 4296 plug-in hybrid) electric vehicles that qualified for incentives from the provincial government at the end of 2016 vehicles cost $732.5-$883.9 to reduce a tonne of CO2,e emissions over an eight year lifetime. This is then compared with the potential cost incurred by two power to gas energy hubs that utilize clean surplus electricity from the province to offset emissions within the natural gas sector. The use of hydrogen-enriched natural gas and synthetic natural gas (SNG) offsets emissions at $87.8 and $228.7 per tonne of CO2,e in the natural gas sector. This analysis highlights the potential future costs for incentivizing new clean technologies such as electric vehicles and power to gas energy hubs in jurisdictions with a transitioning electricity system.

A Comparison of the Clean Surplus and Prospect Theory Valuation Models

A Comparison of the Clean Surplus and Prospect Theory Valuation Models