ORCID
Jeremy Bertomeu, https://orcid.org/0000-0001-6746-5767
Language
English (en)
Publication Date
2015
Abstract
Christodoulou, Clubb and McLeay (Abacus, this issue) devel op measures of the cost of equity capital that require only accounting inputs, using a s an identification strategy the linear information dynamics of Feltham and Ohlson (1995). I propose to test these mea- sures by evaluating the predictability of innovations to ab normal earnings using various predetermined variables. The over-identifying restricti ons of this model require these in- novations not to be predictable. Using a generalized model, I observe that the estimated measures are probably too low. I conjecture that this anomal y, which occurs jointly with a positive drift in abnormal earnings, is caused by the omissi on of economic assets such as intangibles.
Document Type
Working Paper
DOI
https://doi.org/10.7936/y5s3-bm33
Author's Department
Accounting
Recommended Citation
Bertomeu, Jeremy, "Diagnostics to Evaluate Cost of Capital Measures : A Discussion" (2015). Olin Business School Faculty Research. 4.
https://openscholarship.wustl.edu/business_facpubs/4