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A Comparison of the Performance of Valuation Models: Evidence from Asia-Based Companies Cross-Listed in the U.S.
Kun Wang,
Texas Southern University
Murphy Smith, Texas A & M University
ABSTRACT. Properly assessing a firm's value is a very important subject for financial analysts, investors, lenders, policy-makers, and other market participants. This study compares the relative performance of three valuation models based on accounting variables reported under non-U.S. GAAP, U.S. GAAP and IFRS. Valuation properties of the three models, residual income, book value, and earnings capitalization, exhibit different features when analyzing the effect of country-specific GAAPs. Using accounting variables based on IFRS, we find that the residual income model to be the dominant valuation model in terms of explanatory power and model specification. At the aggregate level, the three valuation models’ explanatory power are almost identical regardless of non-U.S. GAAP and U.S. GAAP, but vary under IFRS. These results are important to investors and other market participants in assessing the usefulness of these valuation models in making investment decisions.
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