Examination of the clean surplus assumption and equity valuation models in three Asian Pacific markets (Singapore, Japan, Hong Kong, China).

摘要

Scope and method of study. The purpose of the proposed study is to assess the ability of three valuation models, (i.e., the Edwards-Bell-Ohlson (EBO) model, the discounted dividend (DD) model, and the discounted cash flow (DCF) model), in revealing a firm's intrinsic value in non-U.S. GAAP environments. Existing empirical evidence shows positive support for the EBO model using samples of U.S. companies. There is no empirical evidence comparing these three models in an international context. Using International Accounting Standards (IAS) as a benchmark, the first step is to examine the underlying clean surplus assumption of the EBO model when applying it internationally. Three Asian Pacific markets, Singapore, Hong Kong, and Japan, are selected according to the extent of their adopting IAS. The analysis of clean surplus compliance with accounting standards provides an explanation of how the EBO model responds in non-U.S. GAAP environments. The predictive ability and the explanatory power of the EBO model are compared with those of the other two models in each of the three selected markets.; Findings and conclusions. Results of examining accounting standards show that Japanese GAAP has no allowable equity adjustment item and is the cleanest. Empirical results show strong support for the superiority of the EBO model in terms of both predictive ability and explanatory power in all three markets. The link between the extent of clean surplus compliance and the EBO model's ability to reveal a firm's intrinsic value is weakly supported. Findings of this study contribute to the international accounting literature by adding evidence as to whether the EBO model can serve as a cross-border value estimator and how accounting practices affect its ability to do so.