Equity valuation in practice: The influence of net financial expenses

Leif Atle Beisland

Accounting forum, 2014, vol. 38, issue 2, 122-131

Abstract: This study investigates the relevance of net financial expenses with respect to equity valuation in an IFRS accounting regime. According to the residual earnings valuation model, income related to balance sheet items that are recorded at fair value is not applicable for valuation purposes. There are no residual earnings associated with these items because the balance sheet provides ‘perfect’ value estimates for the items in question. In accordance with the contention that under IFRS, aggregate net financial liabilities are recorded at a book value that is close to fair value, this study demonstrates that net financial expenses are not associated with the market prices of stocks. The investigation discusses the empirical findings in light of the enduring controversies regarding the use of fair value accounting.

Keywords: Value relevance; Net financial expenses; Residual earnings; Operating income; Equity valuation; Fair value accounting (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:accfor:v:38:y:2014:i:2:p:122-131

DOI: 10.1016/j.accfor.2013.04.008

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