Somchai Supattarakul and Anya Khanthavit
Empirical Evidence on Equity Valuation of Thai Firms
1089 - 1098
2011
5
8
International Journal of Economics and Management Engineering
https://publications.waset.org/pdf/2423
https://publications.waset.org/vol/56
World Academy of Science, Engineering and Technology
This study aims at providing empirical evidence on a
comparison of two equity valuation models (1) the dividend discount
model (DDM) and (2) the residual income model (RIM), in
estimating equity values of Thai firms during 19952004. Results
suggest that DDM and RIM underestimate equity values of Thai
firms and that RIM outperforms DDM in predicting crosssectional
stock prices. Results on regression of crosssectional stock prices on
the decomposed DDM and RIM equity values indicate that book
value of equity provides the greatest incremental explanatory power,
relative to other components in DDM and RIM terminal values,
suggesting that book value distortions resulting from accounting
procedures and choices are less severe than forecast and
measurement errors in discount rates and growth rates.
We also document that the incremental explanatory power of book
value of equity during 19982004, representing the information
environment under Thai Accounting Standards reformed after the
1997 economic crisis to conform to International Accounting
Standards, is significantly greater than that during 19951996,
representing the information environment under the prereformed
Thai Accounting Standards. This implies that the book value
distortions are less severe under the 1997 Reformed Thai Accounting
Standards than the prereformed Thai Accounting Standards.
Open Science Index 56, 2011