|Chan, Chi-man Philip
|Equity valuation, negative earnings and book value : evidence from Hong Kong
|Stocks -- China -- Hong Kong
Hong Kong Polytechnic University -- Dissertations
Department of Accountancy
|x, 80 leaves : ill. ; 30 cm
|In this thesis, I perform empirical research using 3,945 firm-year observations of firms listed on The Stock Exchange of Hong Kong for the 1979 - 1998 period to investigate the existence of mis-specification of simple earnings capitalisation model. Briefly, Hong Kong evidence reported in this thesis is in common with the U.S. evidence as documented by Collins, Pincus and Xie (1999). In summary, this thesis demonstrates an anomalous significantly negative price-earnings relation using the simple earnings capitalisation model for firms reporting losses is due to omitting book value of equity in the valuation specification. Results of various tests support the hypothesis that including book value of equity in the valuation specification eliminates the negative relation. It further attests that the omission of book value of equity induces a negative (positive) bias in the coefficient on earnings for loss (profit) firms and book value is positively correlated to stock price but negatively correlated with earnings for loss firms. In addition, the results highlight the relative importance of earnings and book value of equity for profit against loss firms and reveal that current earnings is more important than book value of equity in the valuation of profit firm, but book value of equity generally appears to be equally important for both groups even under the more properly specified model that includes both earnings and book value of equity. It suggests that security price-earnings relation is not both positive and homogenous over the entire range of earnings realisation across profit and loss firms. In addition, the capitalisation rate on earnings would be biased downward (upward) if loss (profit) firms dominate the sample and book value of equity is omitted from the specification. I hope that the results reported in this thesis provide further evidence from Hong Kong perspective to accord with U.S. evidence on the usefulness of the inclusion of book value of equity as an value-relevance variable in the simple capitalisation model in explaining stock market price.
|All rights reserved
Files in This Item:
|For All Users (off-campus access for PolyU Staff & Students only)
As a bona fide Library user, I declare that:
- I will abide by the rules and legal ordinances governing copyright regarding the use of the Database.
- I will use the Database for the purpose of my research or private study only and not for circulation or further reproduction or any other purpose.
- I agree to indemnify and hold the University harmless from and against any loss, damage, cost, liability or expenses arising from copyright infringement or unauthorized usage.
By downloading any item(s) listed above, you acknowledge that you have read and understood the copyright undertaking as stated above, and agree to be bound by all of its terms.
Please use this identifier to cite or link to this item: