Accounting rules, equity valuation, and growth options

• 成果类型: Article
• 署名作者: Livdan, Dmitry; Nezlobin, Alexander
• 署名单位: University of California System; University of California Berkeley
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-017-9402-6
• 发表日期: 2017
• 页码: 1122-1155
• 关键词: managerial performance evaluation; Investment decisions; tobin-q; cost; INFORMATION; ratio

摘要

In a model with irreversible capacity investments, we show that financial statements prepared under replacement cost accounting provide investors with sufficient information for equity valuation purposes. Under alternative accounting rules, including historical cost and value in use accounting, investors will generally not be able to value precisely a firm's growth options and therefore its equity. For these accounting rules, we describe the range of valuations that is consistent with the firm's financial statements. We further show that replacement cost accounting preserves all value-relevant information if the firm's investments are reversible. However, the directional relation between the value of the firm's equity and the replacement cost of its assets is different from that in the setting with irreversible investments.