The Role of Bankruptcy Risk in Theoretical Development and Performance Improvement of the Abnormal Earnings Valuation Models
Subject Areas : Journal of Investment KnowledgeMohammadreza Emami Naeini 1 , Forough Rahimi Moogouie 2
1 - Ph.D. of Accounting
2 - Ph.D. of Accounting
Keywords: Abnormal Earnings Valuation, Bankruptcy Risk, Conservatism, Accounting Earnings, Going Concern,
Abstract :
Based on the literature Review about the influence of bankruptcy risk on three principle factors of the abnormal earning valuation models (the going concern assumption, the accounting conservatism and the accounting earnings) in this research, ohlson (1995) and feltham-ohlson (1995) abnormal earning valuation models are adjusted considering the bankruptcy risk and primary models are compared with adjusted models during the 5-years period (from 2003 to 2008) and 10-years period (from 2003 to 2013) using panel data for 110 companies listed on Tehran Stock Exchange. The research results indicate that considering the bankruptcy risk improves the prediction and valuation power of the abnormal earning valuation models during both 5 and 10 years estimated periods. However, due to the uncontrolled growth of prices in the last years of the 10-years period (especially 2012 and 2013) the estimated values by both primary and adjusted models during 10-years estimated period are significantly lower than the actual market values.
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