Empirical Evidence on Equity Valuation of Thai Firms
This study aims at providing empirical evidence on a
comparison of two equity valuation models: (1) the dividend discount
model (DDM) and (2) the residual income model (RIM), in
estimating equity values of Thai firms during 1995-2004. Results
suggest that DDM and RIM underestimate equity values of Thai
firms and that RIM outperforms DDM in predicting cross-sectional
stock prices. Results on regression of cross-sectional stock prices on
the decomposed DDM and RIM equity values indicate that book
value of equity provides the greatest incremental explanatory power,
relative to other components in DDM and RIM terminal values,
suggesting that book value distortions resulting from accounting
procedures and choices are less severe than forecast and
measurement errors in discount rates and growth rates.
We also document that the incremental explanatory power of book
value of equity during 1998-2004, representing the information
environment under Thai Accounting Standards reformed after the
1997 economic crisis to conform to International Accounting
Standards, is significantly greater than that during 1995-1996,
representing the information environment under the pre-reformed
Thai Accounting Standards. This implies that the book value
distortions are less severe under the 1997 Reformed Thai Accounting
Standards than the pre-reformed Thai Accounting Standards.
[1] Dechow, P. M., A. M. Hutton, and R. G. Sloan. 1999. "An Empirical
Assessment of the Residual Income Valuation Model," Journal of
Accounting and Economics 26: 1-34.
[2] Francis, J., P. Olsson, and D. R. Oswald. 2000. "Comparing the Accuracy
and Explainability of Dividend, Free Cash Flow, and Abnormal Earnings
Equity Value Estimates," Journal of Accounting Research 38 (Spring): 45-
70.
[3] Frankel, R. and C. M.C. Lee. 1998. "Accounting Valuation, Market
Expectation, and Cross-sectional stock returns," Journal of Accounting and
Economics 25: 283-319.
[4] Lee, M.C. C., J. Myers, and B. Swaminathan. 1999. "What is the
Intrinsic Value of the Dow?," The Journal of Finance LIV (October):
1693-1741.
[5] Tse, S. and R. Yaansah. 1999. "An Analysis of Historical and Future-
Oriented Information in Accounting-Based Security Valuation Models,"
Contemporary Accounting Research (Summer), 347-380.
[6] Ohlson, J. 1995. "Earnings, Book Value and Dividends in Security
Valuation," Contemporary Accounting Research (Spring): 661-687.
[7] Penman, S. H. and T. Sougiannis. 1998. "A Comparison of Dividend, Cash
Flow, and Earnings Approaches to Equity Valuation," Contemporary
Accounting Research 15 (Fall): 343-383.
[1] Dechow, P. M., A. M. Hutton, and R. G. Sloan. 1999. "An Empirical
Assessment of the Residual Income Valuation Model," Journal of
Accounting and Economics 26: 1-34.
[2] Francis, J., P. Olsson, and D. R. Oswald. 2000. "Comparing the Accuracy
and Explainability of Dividend, Free Cash Flow, and Abnormal Earnings
Equity Value Estimates," Journal of Accounting Research 38 (Spring): 45-
70.
[3] Frankel, R. and C. M.C. Lee. 1998. "Accounting Valuation, Market
Expectation, and Cross-sectional stock returns," Journal of Accounting and
Economics 25: 283-319.
[4] Lee, M.C. C., J. Myers, and B. Swaminathan. 1999. "What is the
Intrinsic Value of the Dow?," The Journal of Finance LIV (October):
1693-1741.
[5] Tse, S. and R. Yaansah. 1999. "An Analysis of Historical and Future-
Oriented Information in Accounting-Based Security Valuation Models,"
Contemporary Accounting Research (Summer), 347-380.
[6] Ohlson, J. 1995. "Earnings, Book Value and Dividends in Security
Valuation," Contemporary Accounting Research (Spring): 661-687.
[7] Penman, S. H. and T. Sougiannis. 1998. "A Comparison of Dividend, Cash
Flow, and Earnings Approaches to Equity Valuation," Contemporary
Accounting Research 15 (Fall): 343-383.
@article{"International Journal of Business, Human and Social Sciences:51555", author = "Somchai Supattarakul and Anya Khanthavit", title = "Empirical Evidence on Equity Valuation of Thai Firms", abstract = "This study aims at providing empirical evidence on a
comparison of two equity valuation models: (1) the dividend discount
model (DDM) and (2) the residual income model (RIM), in
estimating equity values of Thai firms during 1995-2004. Results
suggest that DDM and RIM underestimate equity values of Thai
firms and that RIM outperforms DDM in predicting cross-sectional
stock prices. Results on regression of cross-sectional stock prices on
the decomposed DDM and RIM equity values indicate that book
value of equity provides the greatest incremental explanatory power,
relative to other components in DDM and RIM terminal values,
suggesting that book value distortions resulting from accounting
procedures and choices are less severe than forecast and
measurement errors in discount rates and growth rates.
We also document that the incremental explanatory power of book
value of equity during 1998-2004, representing the information
environment under Thai Accounting Standards reformed after the
1997 economic crisis to conform to International Accounting
Standards, is significantly greater than that during 1995-1996,
representing the information environment under the pre-reformed
Thai Accounting Standards. This implies that the book value
distortions are less severe under the 1997 Reformed Thai Accounting
Standards than the pre-reformed Thai Accounting Standards.", keywords = "Dividend Discount Model, Equity Valuation Model,Residual Income Model, Thai Stock Market", volume = "5", number = "8", pages = "953-10", }