Lundholm and OKeefe (2001) state while all authors acknowledge that the models are equivalent in theory, they
Question:
Lundholm and O’Keefe (2001) state “while all authors acknowledge that the models are equivalent in theory, they proceed to compare them anyway based loosely on the idea that in a practical implementation or a large-sample study, the models can vary.” They claim that there is nothing to be learned from the empirical comparison of valuation models and thus dismiss the research of Penman (2001) and others claiming the superiority of accrual accounting based residual income models (RIVM)
(a) Give a full explanation of the Lundholm and O’Keefe criticism on Penman’sresearch with particular reference to how prior research has applied inconsistent assumptions.
(b) Lundholm and O’Keefe use the term “clean surplus”. What does the term mean? Give two examples of why “clean surplus” may not be achieved.
Organizations Behavior, Structure, Processes
ISBN: 978-0078112669
14th Edition
Authors: Gibson, Ivancevich, Donnelly, Konopaske