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Article: When capital follows profitability: Non-linear residual income dynamics

TitleWhen capital follows profitability: Non-linear residual income dynamics
Authors
KeywordsInvestment dynamics
Linear information dynamics
Non-linear residual income dynamics
Residual income
Valuation
Issue Date2001
PublisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=1380-6653
Citation
Review Of Accounting Studies, 2001, v. 6 n. 2-3, p. 229-265 How to Cite?
AbstractEconomic reasoning suggests that capital follows profitability. This study introduces into residual income valuation "capital follows profitability" investment dynamics whereby capital investments are guided by the profitability of underlying investment opportunities. These investment dynamics predict convex versus linear relations between future and current residual income, with slope and convexity dependent on investment opportunity. We test these predictions against the linear information dynamics (LID) proposed by Ohlson (1995) and Feltham and Ohlson (1996), with supportive results. These findings point the way to further development of links between firm value and the economics of value creation. © 2001 Kluwer Academic Publishers.
Persistent Identifierhttp://hdl.handle.net/10722/129000
ISSN
2015 Impact Factor: 1.513
2015 SCImago Journal Rankings: 2.039
SSRN
References

 

DC FieldValueLanguage
dc.contributor.authorBiddle, GCen_HK
dc.contributor.authorChen, Pen_HK
dc.contributor.authorZhang, Gen_HK
dc.date.accessioned2010-12-09T03:05:31Z-
dc.date.available2010-12-09T03:05:31Z-
dc.date.issued2001en_HK
dc.identifier.citationReview Of Accounting Studies, 2001, v. 6 n. 2-3, p. 229-265en_HK
dc.identifier.issn1380-6653en_HK
dc.identifier.urihttp://hdl.handle.net/10722/129000-
dc.description.abstractEconomic reasoning suggests that capital follows profitability. This study introduces into residual income valuation "capital follows profitability" investment dynamics whereby capital investments are guided by the profitability of underlying investment opportunities. These investment dynamics predict convex versus linear relations between future and current residual income, with slope and convexity dependent on investment opportunity. We test these predictions against the linear information dynamics (LID) proposed by Ohlson (1995) and Feltham and Ohlson (1996), with supportive results. These findings point the way to further development of links between firm value and the economics of value creation. © 2001 Kluwer Academic Publishers.en_HK
dc.languageengen_US
dc.publisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=1380-6653en_HK
dc.relation.ispartofReview of Accounting Studiesen_HK
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectInvestment dynamicsen_HK
dc.subjectLinear information dynamicsen_HK
dc.subjectNon-linear residual income dynamicsen_HK
dc.subjectResidual incomeen_HK
dc.subjectValuationen_HK
dc.titleWhen capital follows profitability: Non-linear residual income dynamicsen_HK
dc.typeArticleen_HK
dc.identifier.emailBiddle, GC: biddle@hku.hken_HK
dc.identifier.authorityBiddle, GC=rp00230en_HK
dc.description.naturepostprinten_US
dc.identifier.doi10.1023/A:1011666926073-
dc.identifier.scopuseid_2-s2.0-0037729418en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-0037729418&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume6en_HK
dc.identifier.issue2-3en_HK
dc.identifier.spage229en_HK
dc.identifier.epage265en_HK
dc.publisher.placeUnited Statesen_HK
dc.identifier.ssrn251188-
dc.identifier.scopusauthoridBiddle, GC=6701761934en_HK
dc.identifier.scopusauthoridChen, P=25026055000en_HK
dc.identifier.scopusauthoridZhang, G=7405270118en_HK

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