PRICE/BOOK RATIO AND THEIR RELATIONS WHIT ABNORMAL EARNINGS IN BRAZILIAN STOCK EXCHANGE
DOI:
https://doi.org/10.11606/rco.v9i23.61873Keywords:
Abnormal earnings, Residual Income Valuation, Price/BookAbstract
This study analyses the relation between Price/Book ratio of the shares negotiated in Stock Exchange and the Abnormal Earnings of their respective companies during the period from 1996 to 2014. The Residual Income Valuation model, proposed by James Ohlson, and the Abnormal Earnings are used to valuate the companies, calculating their values based on their accounting figures (instead of discounted dividends), and linking these values with the Price/Book ratio presented by the companies. The tests focus on two portfolios formed yearly on ranked values of Price/Book ratios for individual stocks: one portfolio with the highest P/B and other with the lowest P/B. The purpose is to evaluate if the highest P/B companies are the companies which present the highest abnormal earnings. Considering a statistical significance of 5%, the tests show that the companies with highest P/B are indeed the ones which present the highest abnormal earnings for sixteen of nineteen years/samples.
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