Using earnings forecasts to simultaneously estimate firm-specific cost of equity and long-term growth

• 成果类型: Article
• 署名作者: Nekrasov, Alexander; Ogneva, Maria
• 署名单位: University of California System; University of California Irvine; Stanford University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-011-9159-2
• 发表日期: 2011
• 页码: 414-457
• 关键词: IMPLIED COST; cross-section; expected rate; return; RISK; persistence; ratios

摘要

A growing body of literature in accounting and finance relies on implied cost of equity (COE) measures. Such measures are sensitive to assumptions about terminal earnings growth rates. In this paper we develop a new COE measure that is more accurate than existing measures because it incorporates endogenously estimated long-term growth in earnings. Our method extends Easton et al. (J Account Res, 40, 657-676, 2002) method of simultaneously estimating sample average COE and growth. Our method delivers COE (growth) estimates that are significantly positively associated with future realized stock returns (future realized earnings growth). Moreover, the predictive ability of our COE measure subsumes that of other commonly used COE measures and is incremental to commonly used risk characteristics. Our implied growth measure fills the void in the earnings forecasting literature by robustly predicting earnings growth beyond the five-year horizon.