6533b833fe1ef96bd129cad2

RESEARCH PRODUCT

Equity valuation in practice: The influence of net financial expenses

Leif Atle Beisland

subject

FinanceActuarial scienceMark-to-market accountingbusiness.industryAccountingInventory valuationNet incomeAccountingFair valueEconomicsBalance sheetbusinessMarket valueFinanceValuation (finance)Residual income valuation

description

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.

yearjournalcountryeditionlanguage
2014-06-01Accounting Forum
https://doi.org/10.1016/j.accfor.2013.04.008