Comparison Of The Residual Income Valuation, Abnormal Earnings Growth And Free Cash Flow Models: An Empirical Study Of The Brazilian Capital Market

Eric Serrano Ferreira, Valcemiro Nossa, Bruno Cesar Aurichio Ledo, Arilda Magna Campagnharo Teixeira and Alexsandro Broedel Lopes
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Eric Serrano Ferreira: Espirito Santense Integrate College
Valcemiro Nossa: FUCAPE Business School
Bruno Cesar Aurichio Ledo: FUCAPE Business School
Arilda Magna Campagnharo Teixeira: FUCAPE Business School
Alexsandro Broedel Lopes: USP – University of São Paulo

Brazilian Business Review, 2008, vol. 5, issue 2, 143-162

Abstract: This study compares the explanatory power of the residual income valuation (RIV), abnormal earnings growth (AEG) and free cash flow (FCF) models in the Brazilian capital market, through an empirical test to compare the three models, using data on companies listed on the BOVESPA. Each model was analyzed annually over the period from 1995 to 2002 by multiple linear regression. The results show that from 1995 to 1999 the RIV model had better explanatory power than the other two models, and from 2000 to 2002 the AEG and RIV models were the same, an indicator of the Brazilian market’s development in the more recent years of the study period. The FCF model had the least explanatory power in all the years analyzed. The results were confirmed by panel data analysis.

Keywords: residual income valuation; abnormal earnings growth; free cash flow; panel data. (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bbz:fcpbbr:v:5:y:2008:i:2:p:143-162

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