ValuationandCleanSurplusAccountingforOperatingandF

ValuationandCleanSurplusAccountingforOperatingandFinancialActivities*GERALDA.FELTHAMUniversityofBritishColumbiaJAMESA.OHLSONColumbiaUniversityAbstract.Thispapermodelstherelationbetweenafirm'smarketvalueandaccountingdataconcemingoperatingandfinancialactivities.Bookvalueequalsmarketvalueforfinancialactivities,buttheycandifferforoperatingactivities.Marketvalueisassumedtoequalthenetpresentvalueofexpectedfuturedividends,andisshown,undercleansur-plusaccounting,toalsoequalbookvalueplusthenetpresentvalueofexpectedfutureabnormaleamings(whichequalsaccountingeamingsminusaninterestchargeonopen-ingbookvalue).Alinearmodelspecifiesthedynamicsofaninformationsetthatincludesbookvalueandabnormalearningsforoperatingactivities.Modelparametersrepresentpersistenceofabnormaleamings,growth,andaccountingconservatism.Themodelissufficientlysim-pletopermitderivationofclosedformexpressionsrelatingmarketvaluetoaccountingdataandotherinfonnation.Threekindsofanalysesdevelopfromthemodel.Thefirstsetdealswithvalueasitrelatestoanticipatedrealizationsofaccountingdata.Thesecondsetexaminesinprecisetermshowvaluedependsoncontemporaneousrealizationsofaccountingdata.Thethirdsetexaminesasymptoticrelationscomparingmarketvaluetoeamingsandbookvalues,andhowearningsrelatetobeginningofperiodbookvalues.Thepaperdemonstratesthatinallthreesetsofanalysestheconclusionshingeontheextenttowhichtheaccountingisconservativeasopposedtounbiased.Further,theabsence/presenceofgrowthinoperatingactivitiesisrelevantif,andonlyif,theaccount-ingisconservative.Resume.Lesauteurspresententsousformedemodelelarelationentrelavaleurmarchandcd'uneentrepriseetlesdonndescomptablesrelativesksesactivit6sd'exploita-tionetsesactivitesfinancieres.Lavaleurcomptableest6galeklavaleurmarchandelorsqu'ils'agitd'activitfisUnanci^res,maisellepeutetredifferentedanslecasdesactiv-itdsd'exploitation.Lesauteurssupposentquelavaleurmarchandeest6galeklavaleuractualis6enettedesdividendesfutursprdvusetdemontrentque,lorsqu'onappliquelamethodeduresultatglobal,lavaleurmarchandee.staussi^galekIavaleurcomptableadditionneedelavaleuractualisdenettedesbeneficesextraordinairesfuturspr6vus(qui*AcceptedbyMichaelGibbins.TheauthorsthankJimXieforhisanalyticalassistance.GeraldFelthamreceivedgrantstosupportthisresearchfromtheUniversityofBritishColumbiaandtheSocialSciencesandHumanitiesResearchCouncilofCanada.ContemporaryAccountingResearchVol!1No.2(Spring1995)pp689-731®CAAA690ContemporaryAccountingResearchsont6gauxauxb6ndficescomptablesdiminu€sdefraisd'int6r8timplicitessurlavaleurcomptablenette).Unmodulelindairepreciseladynamiqued'unensemblededonn6es,induantlavaleurcomptableetlesb6n6ficesextraordinaires,relativesauxactivit6sd'exploitation.Lesparam&tresdumoduletraduisentlapersistancedesb6n6ficesextraordinaires,lacrois-sanceetleprincipedeprudence.Lemod^eestsuffisammentsimplepourpermettreded6riverdesexpressionsfermdesquimettentenrelationlavaleurmarchandeetlesdonn6escomptablesetautres.Dumodeleseddgagenttroisformesd'analyses.Lapremiereportesurlavaleur,danssarelationaveclamaterialisationanticip6edesdonn^escomptables.Ladeuxi&meportesurl'examenpr^isdulienentrelavaleuretlamaterialisationactuelledesdonn^escomptables.Enfin,latroisi^meportesurl'examendesrelationsasymptotiquesktraverslesquellessecomparentlavaleurmarchande,d'unepart,etlesbdn^ficesetlavaleurcomptable,d'autrepart,ainsiquesurlafa9ondontlesbeneficesserattachentauxvaleurscomptablesduddbutdel'exercice.Lesauteurs6tablissentquedanslestroisformesd'analyses,lesconclusionss'orien-tentverslamesuredanslaquelle,dansledomainecomptable,l'accentestmissurIapru-denceparoppositionkI'impartialite.Enoutre,l'absenceoulapr6sencedecroissancedanslesactivit^sd'exploitationn'estpertinentequesietseulementsileprincipedepru-denceestappliqudklacomptabilit6.Thispapermodelshowafirm'smarketvaluerelatestoaccountingdatathatdisclosesresultsfrombothoperatingandfinancialactivities.Eachofthetwoactivitiesraisesdistinctaccountingmeasurementissues,which,intum,influencetheanalysisofafirm'smarketvalueasafunctionofthefinancialstatements'components.Financialactivitiesinvolveassetsandliabilitiesforwhichtherearerelativelyperfectmarkets.Hence,onecanplausiblyconceptualizeaccountingmeasurementssuchthatbookvaluesandmarketvaluescoincidefortheseassetsandliabilities.Accmalaccountingforfinancialactivitiescanbeviewedaseitherredundantorstraightforward(e.g.,theaccountingforinterestaccmals).Incontrast,theaccountingforoperatingassets(receivables,inventory,etc.)precipitatesmoreintricateconcemsbecausetheseassetsaretypicallynotindividual-lytradedinperfectmarkets.Thus,measurementsofoperatingaccountingeamingsfocusoncashflowsadjustedforaccmals,andtheuseofaccountingconventionsforaccrualsgenerallyleadstodifferencesbetweenafirm'smarketandbookvalues.Theexistenceofthelatterdis-crepancy,referredtoas(unrecorded)goodwill,institutestheproblemofhowtodeterminethefactorsandinformationthatbearonitssignandmagnitude.Hence,inbroadterms,thispaperanalyzeshowaccmalaccountingrelatestothevaluationofafirm'sequityandgoodwill.Themodelstartsfromtheassumptionthatthevalue