Information dynamics, dividend displacement, conservatism, and earnings measurement: a development of the Ohlson (1995) valuation framework

Colin D. B. Clubb ()
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Colin D. B. Clubb: King’s College London

Review of Accounting Studies, 2013, vol. 18, issue 2, No 3, 360-385

Abstract: Abstract This paper extends the Ohlson (Contemp Account Res 11, 661–687, 1995) equity valuation framework by demonstrating that dividend displacement continues to hold when dividends have a positive forecast coefficient in the linear abnormal earnings dynamic. The analysis demonstrates that such a predictive role for dividends implies a positive association between cum div book value of equity and the present value of expected abnormal earnings, consistent with both dividend displacement and accounting conservatism. While a signaling role for dividends is ruled out, a link between dividends, expected performance, and equity value is, however, demonstrated. The paper also considers a linear information model where an undefined variable replaces realized abnormal comprehensive earnings as an indicator of future performance. The role of this variable as a predictor of future abnormal comprehensive earnings is highlighted and the special case where it corresponds to recurring abnormal earnings is considered. This latter case provides useful implications for implementation of asset revaluations.

Keywords: Equity valuation; Abnormal earnings; Linear information models; Dividend irrelevance; Accounting conservatism; Financial reporting (search for similar items in EconPapers)
JEL-codes: G10 G19 G30 G35 M40 M41 M49 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s11142-012-9211-x

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