Samenvatting artikelen
International Financial Accounting
, Valuation and clean surplus accounting for operating and financial activities
Feltham and Olson
This paper models the relation between a firm’s market value and accounting data
concerning operating and financial activities.
Financial activities involve assets and liabilities for which there are relatively perfect markets.
The accounting for operating assets precipitates more intricate concerns because these
assets are typically not individually traded in perfect markets.
Thus, measurement of operating accounting earnings focus on cash flows adjusted for
accruals, and the use of accounting conventions for accruals generally leads to differences
between a firm’s market and book values.
Three basic statements supply accounting data:
- Income statement
- Balance sheet
- Statement of changes in owner’s equity
The first set of analyses explores the relation between value and expectations about future
accounting numbers.
Three concepts play a central role in the derivation of accounting-based expressions of
value:
1. The income statements and balance sheets reconcile via the clean surplus relation.
a. One infers that a firm’s goodwill equals the present value of anticipated
future “abnormal earnings”, where abnormal earnings are defined to equal
reported earnings - the risk-free interest rate * the book value of the firm’s
equity.
2. The analysis incorporates Modigliani and Miller’s basic concept regarding debt.
a. The firm’s borrowing activities yield zero net present value
b. Financing activities separate from the operating activities, to ensure that a
firm’s equity value equals the value of the operating activities + the value of
the financial assets
c. The value of financial assets is assumed to equal their book value “perfect”
accounting applies
3. The cash flow concept evolves naturally if one appreciates that the difference
between cash flows and operating earnings is due to accruals, that is, cash flows
equal operating earnings minus the change in operating assets.
The second set of analyses explore the relation between value and current accounting
numbers. These analyses are based on a model that relates current accounting data to the
prediction of future realizations of accounting data to the prediction of future realizations of
accounting data.
,The information dynamics are assumed to be linear and thy are specified so that one obtains
a parsimonious model in which there is a precise parametric representation of three key
characteristics of the dynamics:
1. The persistence in abnormal operating earnings
2. The growth in operating assets
3. The conservatism in reporting operating assets
The dichotomy between unbiased versus conservative accounting is defined in terms of how
the market value differs, on average , from the book value.
Unbiased the market value = the book value
Conservative similar but requires additionally an adjustment for the understatement of
operating assets.
The third set of analyses examine the expectations with respect to the asymptotic relations
of market value and changes in market value to contemporaneous earnings and the relation
of book value to subsequent earnings.
The fourth set of analyses examine how conservative accounting influences the response of
value to increments in various components of earnings and assts, subject to debits equal
credits.
Ohlson accounting measurements satisfy the clean surplus relation, i.e., all changes in
book value are reported as either income or dividends.
, The capitalization, amortization, and value-relevance of R&D
Lev, Sougiannis
GAAP mandates the full expensing of R&D in financial statements, presumably because of
concerns with the reliability, objectivity, and value-relevance of R&D capitalization.
We document a significant intertemporal association between firms’ R&D capital and
subsequent stock returns, suggesting either a systematic mispricing of the shares of R&D-
intensive companies, or a compensation for an extra-market risk factor associated with R&D.
The main objective of this study is to address the issues with reliability, objectivity, and value
relevance of R&D capitalization.
Compared with this study, previous studies generally used proxies for R&D investment, such
as the R&D to sales ratio, while we estimate firm-specific R&D capital and adjust reported
earnings for the full R&D expensing.
Earnings = operating income before depreciation and the expensing of R&D and
advertising.
Operating income
Used as a measure of R&D benefits, since R&D investment and its consequences seem
largely unrelated to nonoperating items, such as administrative expenses and financing
charges.
Tangible assets
3 components:
Plant and equipment
Inventories
Investment in unconsolidated subsidiaries and purchased intangibles
R&D capital
Lag structure of annual R&D expenditures, where these expenditures are adjusted for
inflation to reflect current-year dollars.
Advertising expenditures
May create an additional intangible asset for some sample firms.
The following major conclusions can be drawn from the evidence presented above:
1. The R&D capitalization process developed here yields statistically reliable estimates of the
amortization rate of the R&D capital. These amortization rates are used to compute firm-
specific R&D capital and adjust reported earnings and equity (book) values to reflect the
capitalization of R&D.
International Financial Accounting
, Valuation and clean surplus accounting for operating and financial activities
Feltham and Olson
This paper models the relation between a firm’s market value and accounting data
concerning operating and financial activities.
Financial activities involve assets and liabilities for which there are relatively perfect markets.
The accounting for operating assets precipitates more intricate concerns because these
assets are typically not individually traded in perfect markets.
Thus, measurement of operating accounting earnings focus on cash flows adjusted for
accruals, and the use of accounting conventions for accruals generally leads to differences
between a firm’s market and book values.
Three basic statements supply accounting data:
- Income statement
- Balance sheet
- Statement of changes in owner’s equity
The first set of analyses explores the relation between value and expectations about future
accounting numbers.
Three concepts play a central role in the derivation of accounting-based expressions of
value:
1. The income statements and balance sheets reconcile via the clean surplus relation.
a. One infers that a firm’s goodwill equals the present value of anticipated
future “abnormal earnings”, where abnormal earnings are defined to equal
reported earnings - the risk-free interest rate * the book value of the firm’s
equity.
2. The analysis incorporates Modigliani and Miller’s basic concept regarding debt.
a. The firm’s borrowing activities yield zero net present value
b. Financing activities separate from the operating activities, to ensure that a
firm’s equity value equals the value of the operating activities + the value of
the financial assets
c. The value of financial assets is assumed to equal their book value “perfect”
accounting applies
3. The cash flow concept evolves naturally if one appreciates that the difference
between cash flows and operating earnings is due to accruals, that is, cash flows
equal operating earnings minus the change in operating assets.
The second set of analyses explore the relation between value and current accounting
numbers. These analyses are based on a model that relates current accounting data to the
prediction of future realizations of accounting data to the prediction of future realizations of
accounting data.
,The information dynamics are assumed to be linear and thy are specified so that one obtains
a parsimonious model in which there is a precise parametric representation of three key
characteristics of the dynamics:
1. The persistence in abnormal operating earnings
2. The growth in operating assets
3. The conservatism in reporting operating assets
The dichotomy between unbiased versus conservative accounting is defined in terms of how
the market value differs, on average , from the book value.
Unbiased the market value = the book value
Conservative similar but requires additionally an adjustment for the understatement of
operating assets.
The third set of analyses examine the expectations with respect to the asymptotic relations
of market value and changes in market value to contemporaneous earnings and the relation
of book value to subsequent earnings.
The fourth set of analyses examine how conservative accounting influences the response of
value to increments in various components of earnings and assts, subject to debits equal
credits.
Ohlson accounting measurements satisfy the clean surplus relation, i.e., all changes in
book value are reported as either income or dividends.
, The capitalization, amortization, and value-relevance of R&D
Lev, Sougiannis
GAAP mandates the full expensing of R&D in financial statements, presumably because of
concerns with the reliability, objectivity, and value-relevance of R&D capitalization.
We document a significant intertemporal association between firms’ R&D capital and
subsequent stock returns, suggesting either a systematic mispricing of the shares of R&D-
intensive companies, or a compensation for an extra-market risk factor associated with R&D.
The main objective of this study is to address the issues with reliability, objectivity, and value
relevance of R&D capitalization.
Compared with this study, previous studies generally used proxies for R&D investment, such
as the R&D to sales ratio, while we estimate firm-specific R&D capital and adjust reported
earnings for the full R&D expensing.
Earnings = operating income before depreciation and the expensing of R&D and
advertising.
Operating income
Used as a measure of R&D benefits, since R&D investment and its consequences seem
largely unrelated to nonoperating items, such as administrative expenses and financing
charges.
Tangible assets
3 components:
Plant and equipment
Inventories
Investment in unconsolidated subsidiaries and purchased intangibles
R&D capital
Lag structure of annual R&D expenditures, where these expenditures are adjusted for
inflation to reflect current-year dollars.
Advertising expenditures
May create an additional intangible asset for some sample firms.
The following major conclusions can be drawn from the evidence presented above:
1. The R&D capitalization process developed here yields statistically reliable estimates of the
amortization rate of the R&D capital. These amortization rates are used to compute firm-
specific R&D capital and adjust reported earnings and equity (book) values to reflect the
capitalization of R&D.
