Resource title

The Stock market valuation of earnings and book value: some international evidence

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We predict how the relative valuation roles of earnings and book value vary accross countries (Germany, France and the U.K.). 1- Because of the predominant investor focus in the U.K. and the creditor focus and tax-book conformity in Germany and France, the relative explanatory power for price of earnings is larger than that of book value in the U.K., and vice versa in Germany and France. The empirical results confirm the prediction in the U.K., but not in Germany and France. Based on the differences in conservatism in the German, French, and U.K. accounting systems. 2- In a regression of price on earnings and book value, the coefficients are larger in Germany and France than in the U.K. The evidence supports this prediction for the book value coefficient but not for the earnings coefficient. These results remain unaltered after controlling for cross-sectional variation in valuation multiples and explanatory power for price of earnings and book value

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp1997/97-91.pdf

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Copyright INSEAD. All rights reserved