Valuation Coefficient Research Articles

Design, simulation and feasibility of the innovative agricultural warehouse receipt system through dynamic programming and agent-based models.

To address marketing challenges in the agricultural sector, provide financial support for small-scale farmers over marketing seasons, manage price risks of agricultural products, and enhance the functioning of agricultural mercantile exchanges, it is attainable to implement an efficient and compliant warehouse receipt system (WRS) that aligns with the legal, institutional, social, and economic-financial conditions of a country. The aim of this study is to design, simulate, and assess the feasibility of an innovative WRS in the agricultural sector. To achieve this, a WRS was designed and evaluated for maize crop in Iran. The research methodology of this study is divided into three main parts: design, simulation, and feasibility assessment of the WRS. The design process incorporated the FAO-provided (2009) warehouse receipt system development, considering the experiences of various countries and the institutional and financial regulations specific to Iran. Additionally, a dynamic programming model was used to simulate the system, and an agent-based model was utilized for system feasibility assessment. The study results demonstrated that it is possible to design an innovative and efficient WRS by involving five key actors, including farmers, buyers (maize traders), banks, mercantile exchange market, and the warehouse (governmental institution), and establishing clear communications among them. Based on simulation results using dynamic programming model, it was evident that four parameters, namely the annualized loan interest rate, the valuation coefficient for loan collateral, price volatility of the product over the marketing season, and the warehouse cost-to-product value ratio, significantly impact the adoption of the WRS by farmers. In conclusion, the findings from the agent-based model revealed that setting the annualized loan interest rate at 8%, a collateral valuation coefficient of 85%, price fluctuations over the non-harvest time at 60%, and a warehouse cost-to-product value ratio of 2% can result in the participation of nearly 100% of farmers in the proposed WRS.

Housing economic valuation in the metropolitan area of Puebla, Mexico

Objective: The purpose of this research was to identify the sale value of homes in the metropolitan area of the city of Puebla, using the hedonic price technique to determine a model that takes into consideration relevant variables that explain the housing prices.Methodology: An overall problem is land mismanagement. The location of the homes can affect their price. A hedonic price model helps to determine the relative importance of the variables in the final price. This information provides an initial perspective to the people who are interested in acquiring a home in the study area. The model was built based on the information collected from 182 properties and it was analyzed using theSPSS software version 28.0.0.0.Results: The most significant variables that determine housing prices, which presented a multiple valuation coefficient of 64.3%. The effect of the variables on the housing value was determined by means of elasticities.Study Limitations: There were no limitations for this report.Conclusions: The following variables were significant: new home, number of bathrooms, built‐up area, private security, distance to the downtown of Puebla, and distance to a park.

Value relevance of accounting information under an integrated reporting approach: A research note

This research note aims to enrich our understanding regarding the market valuation implications of financial reporting under an Integrated Reporting (IR) approach. In order to do so, we focus on the Johannesburg Stock Exchange (JSE) and we examine whether the value relevance of summary accounting information (i.e., book value of equity and earnings) of firms listed on the JSE has enhanced after the mandatory adoption of an IR approach under the King III Report. Our study can be seen as a response to the recent calls for a closer investigation of the usefulness of the new reporting trend for investors. More specifically, our study can be seen as a response to the stance taken by the International Integrated Reporting Council (IIRC) Framework that the adoption of an IR approach improves the usefulness of financial reporting for investors. For our empirical tests we utilize a sample of 954firm-year observations and employ a linear price-level model which associates a firm’s market value of equity with its book value of equity and earnings. In line with the IIRC Framework’s expectations, we find strong evidence of a sharp increase of the earnings’ valuation coefficient. However, contrary to the Framework’s stance, our results indicate a decline in the value relevance of net assets. Such a decline may be imputed to risks and/or unbooked liabilities that are revealed or measured more reliably after the introduction of an IR approach on the JSE. It should be noted, however, that despite its cause, the decline in the value relevance of net assets can be seen as a further argument in favor of the IIRC stance to assign equal importance to a wide range of “capitals,” such as human, social and natural capital. We believe that our findings are of particular interest to a wide range of regulators, standards setters, practitioners, and academics but first and foremost to the JSE and IIRC.

Diagnosis and Intervention Criteria in Slabs Damaged by Severe Corrosion of Prestressed Joists

This research defines diagnosis criteria in RC one-way slabs with severe corrosion at the lower prestressed reinforcement of the joists and proposes specific actuation criteria and constructive recommendations to increase safety. The corrosion of this reinforcement is the most common damage in building structures, and the use of aluminous cement in the precast joists can aggravate the corrosion. The usual cases of entire residential buildings with different degrees of damage and with a few or all joists affected in a slab have been simulated. American Concrete Institute load test for existing structures is used as an acceptance criterion in the simulations, and a ratio between the ultimate load and the service load is defined as a valuation coefficient. In this way, the residual safety for a damaged structure is known. Results are in accordance with extensive experience in real intervention cases, which often still have high safety reserves.

The Effect of the IFRS on Intercompany Transactions. The Case of the Greek Food-beverage Sector

The present study examines the value relevance of disclosed related party transactions (RPTs) in group of companies at the Greek food-beverage sector. We are based on two types of transactions, exchange of goods- products and exchange of assets, using a value relevance approach. We apply the model of Ohlson for the period 2003-2012 and we observe that the reported earnings of firms selling goods or assets to related parties exhibit a lower valuation coefficient than those of firms in Greece without such transactions. This result is not observed after 2005, when a new fair value measurement rule for related party transactions came into effect. Our evidence suggests that the new RPT regulation in Greece is perceived to be effective at reducing the potential misuse of RPTs for earnings management purposes. Since RPTs have been the subject of numerous scandals, our evidence from the Greek stock markets suggests that new RPT accounting standards could prove an effective solution to this issue.

Estimating Eco-Compensation Requirements for Forest Ecosystem Conservation

This study provides an estimation of the eco-compensation requirements for forest ecosystem conservation in Hainan province of China using the ecological location quotient (ELQ). It determines that the ecosystem services provided by the forest ecosystem need to be classified into predominant, secondary and potential types. Consequently, the appropriate levels of payment are calculated using the ecological valuation coefficient (EVC) method. The mechanisms and standards of payment are then determined for the corresponding stages in the context of the eco-compensation concept. In this way, guidelines are provided for practising eco-compensation, not only in Hainan province but also in the other parts of China.

The Effect of the International Accounting Standards on the Related Party Transactions Disclosure

Problem statement: Several recent North American corporate scandals have brought attention to the potential for accounting manipulations associated with Related Party Transactions (RPTs), which have lead to a decline in perceived earnings quality. We examine the value relevance of disclosed RPTs in Greek corporations. Approach: We focus on two types of RPTs: sales of goods and sales of assets, using a value relevance approach. Results: From 2002-2007, we find that the reported earnings of firms selling goods or assets to related parties exhibit a lower valuation coefficient than those of firms in Greece without such transactions. This result is not observed during 2005-2007 after a new fair value measurement rule for RPTs came into effect. Conclusion: Our evidence suggests that the new RPT regulation in Greece is perceived to be effective at reducing the potential misuse of RPTs for earnings management purposes. Since RPTs have been the subject of numerous scandals in North America, our evidence from the Greek stock markets suggests that new RPT accounting standards could prove an efficient solution to this issue.

Value relevance of IFRS mandatory disclosure requirements

Purpose– The purpose of this paper is to address recent calls for research regarding the valuation implications of mandatory disclosure requirements (cf. Hassanet al., 2009; Leuz and Wysocki, 2008; Schipper, 2007).Design/methodology/approach– The paper measures compliance with all International Financial Reporting Standards (IFRS) mandatory disclosure requirements for a sample of firms. The paper subsequently explores whether the compliance scores (i.e. the mandatory disclosure levels) are value relevant and whether the value relevance of accounting numbers differs across high- and low-compliance/disclosure companies.Findings– The paper finds that the levels of mandatory disclosures are value relevant. Additionally, not only the relative value relevance (i.e.R2) but also the valuation coefficient of net income of high-compliance companies is significantly higher than that of low-compliance companies.Research limitations/implications– This paper is an indicative single country case study that focuses on the IFRS adoption year (2005) in the EU. It forms a new avenue for research regarding the valuation implications of mandatory disclosure requirements. It remains to future research to examine whether the findings also hold in other countries and periods.Practical implications– These findings are expected to be particularly relevant to standard setters and regulatory bodies that are concerned about the implications of mandatory disclosure requirements (Schipper, 2007).Originality/value– To the best of authors’ knowledge, this is the first paper that examines the value relevance implications of IFRS mandatory disclosure requirements, focusing on European country after 2005. The authors indicate that IFRS mandatory disclosures do lead to more transparent financial statements (cf. Pownall and Schipper, 1999), mitigating concerns about companies’ fundamentals (cf. Anctilet al., 2004).

The demand for accounting information: young NASDAQ listings versus S&P 500 NYSE listings

The main purpose of this paper is to examine accounting information which can be of poor quality for some industries because uniform regulation applies to all. However, there is a strong demand for reliable accounting data even when the quality of the data is poor. Consistent with this premise, I show that among young NASDAQ listings the valuation coefficient on BVE is higher and that on earnings is not lower for intangible-intensive ventures than for other firms. I also show that GAAP OCF provides additional information that enhances the quality of earning information. This results in a shift in valuation weight from BVE to earnings for intangible-intensive young NASDAQ listings. However, these phenomena do not appear for intangible-intensive S&P 500 firms listed on NYSE. My results suggest that variations in the demand for reliable financial data affect the valuation coefficients on earnings and BVE.

Value relevance of disclosed related party transactions

Abstract Several recent North American corporate scandals have brought attention to the potential for accounting manipulations associated with related party transactions (RPTs), which have lead to a decline in perceived earnings quality. We examine the value relevance of disclosed RPTs in Chinese corporations. We focus on two types of RPTs: sales of goods and sales of assets. From 1997 to 2000, we find that the reported earnings of firms selling goods or assets to related parties exhibit a lower valuation coefficient than those of firms in China without such transactions. This result is not observed during 2001–2003 after a new fair value measurement rule for RPTs came into effect. Our evidence suggests that the new RPT regulation in China is perceived to be effective at reducing the potential misuse of RPTs for earnings management purposes. Since RPTs have been the subject of numerous scandals in North America, our evidence from the Chinese stock markets suggests that new RPT accounting standards could prove an efficient solution to this issue.

R&D market value under weak intellectual property rights protection: the case of India

The relationship between R&D and market value has attracted the interest of many scholars within different fields, but scant attention has been paid to the countries with weak protection of intellectual property rights (IPR). This is unfortunate, since this problem is potentially highly relevant for IPR policy in developing countries. In particular, several questions arise when the problem of R&D market value is analyzed in a country where IPR protection is weak. First, there are concerns regarding incentives (i.e., private returns) for firms to invest in R&D when IPR is only weakly protected. Second, significant differences could emerge in the market valuation of R&D investments of domestic and foreign firms, above all in those industries where spillovers are more likely. To examine these issues, this paper investigates the market valuation of R&D investments of a panel of 219 R&D-reporting domestic and foreign firms publicly traded in India with an empirical analysis. First, the market valuation of the R&D capital for the whole sample is positive and higher than those obtained in U.S. or European countries from similar analyses. Second, in the sub-samples of the domestic and foreign firms, the market value of R&D investments of foreign firms is not significantly different from zero, while the valuation coefficient of domestic firms is four times higher than that obtained on the whole sample. Third, in science-based industries the difference between domestic and foreign firms is smaller than in the other industries. The policy implications of these findings are discussed.

Using accounting information for consumption planning and equity valuation

This article develops a consumption-based valuation model that treats earnings and cash flow as complementary information sources. The model integrates three ideas that do not appear in traditional valuation models: (i) earnings provide information about future shocks to cash flow; (ii) earnings contain indiscernible transient accruals; and (iii) investors use cash flow and earnings to make allocation and consumption decisions and set price. Accordingly, the quality of earnings affects production and consumption as well as price. Among other implications, the model reveals that a valuation coefficient is not just a capitalization factor; it is the product of a capitalization factor and a structural factor reflecting earnings quality and accounting bias.

Using Accounting Information for Consumption Planning and Equity Valuation

This article develops a consumption-based valuation model that treats earnings and cash flow as complementary information sources. The model integrates three ideas that do not appear in traditional valuation models: (i) earnings provide information about future shocks to cash flow; (ii) earnings contain indiscernible transient accruals; and (iii) investors use cash flow and earnings to make allocation and consumption decisions and set price. Accordingly, the quality of earnings affects production and consumption as well as price. Among other implications, the model reveals that a valuation coefficient is not just a capitalization factor; it is the product of a capitalization factor and a structural factor reflecting earnings quality and accounting bias.

Value Relevance of Disclosed Information about Related Party Transactions

Several recent North American corporate scandals have brought to attention the potential for accounting manipulations associated with related parties and related party transactions. Related parties potentially create the concerns that transactions are designed to manage earnings, thereby leading to a decline in perceived earnings quality. We examine the value relevance of disclosed information about related party transactions to investors in China. We focus on two types of related party transactions: sales of goods and sales of assets. We find that, during 1997-2000, the reported earnings of firms selling goods or assets to related parties have a lower valuation coefficient than that of firms without such transactions. This result is not observed during 2001-2003 after a new measurement rule for related party transactions became effective. Our evidence suggests that the new related party transactions measurement regulation adopted in China is perceived effective at reducing the potential for earnings management through related party transactions. Since related party transactions have been the subject of numerous scandals recently in North America, the evidence suggests that new accounting standards could potentially offer more reliable information to investors.

The Impact of Financial Reporting Regulation on the Market Valuation of Reported Environmental Liabilities: Preliminary Evidence from US and Canadian Public Companies

This study investigates the economic consequences of four financial reporting regulations relating to environmental liability reporting in samples of 170 US and 156 Canadian public companies during the period 1984 to 1997. The study's purpose is to investigate the factors that make financial reporting regulation effective in enhancing the relevance and reliability of accounting information. Prior research provides the theory that financial reporting regulations impose costs on managers and create incentives for them to report accounting information that is relevant and unbiased. This study assesses these regulations' enforceability, which is viewed as arising from the regulator's power to enforce its regulations by sanctions or penalties. It tests whether the relation between market valuation and reported environmental liability accruals changes when the new regulations are enacted, and whether regulation with high enforceability has a more significant impact than regulation with low enforceability. This study uses a residual-income valuation model to measure the valuation coefficient, or multiplier, on reported environmental liability accruals. Changes in this coefficient are used as indicators of changes in the market's assessment of the value relevance and bias of the reported accounting information. This study provides preliminary evidence indicating that financial reporting regulations issued by the securities market regulator and the accounting profession are associated with changes in the relation between market value and reported environmental liabilities in some cases, and suggests avenues for further international accounting research on the factors involved in financial reporting regulation's impact.

Relative Valuation Roles of Equity Book Value, Net Income, and Cash Flows during a Macroeconomic Shock: The Case of Mexico and the 1994 Currency Crisis

Using a sample of Mexican firms traded on the Mexican Stock Exchange during the period 1992–1997, we investigate whether the relation between the firms' stock prices and their book values, earnings, and cash flows changes during the 1994 Mexican currency crisis. In pooled cross-sectional tests we find the valuation coefficient on book value does not significantly change during the crisis period, while its incremental explanatory power increases. We also find the valuation coefficient on and incremental explanatory power of earnings decline during the crisis period. However, the decline in the valuation and explanatory power of earnings is attributable to the presence of negative earnings. These results are inconsistent with those from Barth et al. (1998) who find that the valuation and incremental explanatory power of book values (earnings) increase (decrease) as individual firms' financial health decreases in the U.S. Our results also differ from those of studies that examine the valuation of accounting information during the Asian financial crisis (Graham et al. 2000; Ho et al. 2001). Both Graham et al. (2000) and Ho et al. (2001) find that the relevance of earnings declines during the Korean currency crisis even after controlling for negative earnings. However, we find that when we control for negative earnings, the coefficient on earnings remains significant during the crisis period. We attribute the lack of significant changes in the valuation coefficients on book values and positive earnings and increased incremental explanatory power of book values at least in part to the use of current cost and price level accounting in Mexico. Related to this point, in additional analyses we find that the incremental valuation of two components of Mexican earnings, monetary gains and losses and exchange gains and losses, does not change during the crisis, implying that these features of Mexican inflation accounting contribute to its continued relevance during the crisis.

The Analysis of Valuation Model for NASDAQ and Intangible Intensive Firms: Implication of Uncertainty

Using a valuation model, I find that uncertainty about firms varies across the levels of (1) prior information available about the firms, and (2) their intangible assets usage. I find the magnitudes of the coefficients on earnings and BVE for firms that employ intangible assets intensively are higher after controlling for limited prior information. This suggests that two types of uncertainty are impounded in the valuation coefficients on earnings and BVE, resulting in downward bias on these coefficients. Also, the magnitude of the valuation coefficient on earnings (BVE) is higher (lower) for firms with higher operating cash flow. This indicates that there is a potential substitution effect between earnings and BVE as the amount of noise in earnings increases. Finally, I find that abnormal trading volume for NASDAQ firms is higher than for non-NASDAQ firms, this is consistent with the size effect suggested by prior studies.

Self-Sorting, Incentive Compensation, and Human-Capital Assets

Skilled labour has gained significance as a production factor in the age of information technology, but accounting does not recognize human capital as an asset that contributes to the firm’s earning power. This paper suggests a method to develop a latent index to proxy the managerial-skill component of human capital. The proposed index depends on the empirical validity of self-sorting theories for managerial tasks and the choice of the type of at-risk (i.e. outcome-contingent) compensation contract. The empirical analysis uses data on compensation of executive members of the board of directors, their personal attributes (experience, risk aversion and wealth), firm-specific variables ( profitability growth rates, organizational complexity and operating risk), and type of industry. The extent to which equity markets value the predicted labour skills shows that investors in the marketplace recognize human capital even though accounting does not. The valuation coefficient on the variable imputed for human capital is significant for all years examined. This study contributes to the literature by showing that relative incentive compensation (incentive pay per dollar of fixed salary) is a viable surrogate for human capital defined as the skills embodied in people.

Do Accounting Estimates Get More Accurate With Experience and Does The Market Care: The Case of SFAS 106

This paper posits that the precision of accounting estimates should be an increasing function of experience due to learning effects. Using a sample of 747 observations for 305 firms for the period 1993–96 with complete data available on the COMPUSTAT, CRSP, and COMPACT DISCLOSURE databases, the paper conducts regression analyses to examine the precision of two estimates (discount rates and health care cost inflation rates) required under SFAS 106. Tests show that the estimation errors for the health care cost inflation estimates decrease with experience, but those for discounts rates do not. The results persist after controlling for the profile of participants of the health care plan, predisclosure uncertainty, and propensity to manipulate by managers. The results are consistent with “learning effect” for health care cost inflation rates that were being estimated for the first time, while no such effect is visible for discount rates that had been estimated in the past for pension plans. The paper also hypothesizes that the market rewards perceived precision of accounting estimates attributable to learning effect. Cross‐sectional tests confirm that the valuation coefficient of postretirement benefit obligations increases in absolute value as the estimation errors decline, suggesting that the market relies more on reported accounting estimates as their perceived precision improves. Thus, the extant research findings of weak or non‐existent value relevance of SEAS 106 liabilities may have been confined to the initial period after the adoption of SEAS 106 when the measurement errors were high. The documented evidence of improvement in precision provides support for FASB's claim that the reliability of accounting estimates, especially those required by complex standards such as SEAS 106, should improve with experience. The evidence of improvement in value‐relevance should also be reassuring for FASB, since one of the intended benefits of SEAS 106 was to provide value relevant information to the investors.

The Valuation of Deferred Taxes*

We provide evidence regarding the incremental value- relevance of deferred tax information provided under SFAS No. 109. We assess the likelihood of reversal for each component of the deferred tax disclosures required by SFAS No. 109, forming expectations about the direction and magnitude of these components' valuation. Based on these data, we measure the extent to which the valuation of deferred tax components depends on the probability of reversal. Our empirical work tests the hypothesis that deferred taxes that are more likely to reverse in the next period will contribute more to firm value (in absolute terms) than deferred tax components that are less likely to reverse soon. Our model values a firm's equity as a linear function of net operating assets, net financial assets, and current and lagged abnormal operating earnings. We introduce net deferred tax liabilities as a distinct category of (negative) assets in the valuation model and estimate the effect of each different asset class on the market value of the firm's equity. We find that, on average, one dollar of net operating assets is valued as a dollar; a dollar of net financial assets contributes less than one dollar to equity value; and a dollar of net deferred taxes is valued slightly more than a dollar. Separating a firm's deferred tax balance into its component parts provides further, more specific information relevant to firm value. We classify deferred tax components into seven categories, including depreciation and amortization; taxes and losses carried-forward; and restructuring charges. In particular, the valuation coefficient on deferred tax liabilities