What determines residual income?

• Main Author: CHENG, Qiang
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2005
• Subjects: equity valuation; residual income valuation model; economic rents; conservative accounting; Accounting; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/831; https://ink.library.smu.edu.sg/context/soa_research/article/1830/viewcontent/SSRN_id282468.pdf
• Institution: Singapore Management University

This paper investigates the determinants of residual income scaled by book value of equity, i.e., abnormal return on equity (ROE), by analyzing the impact of value-creation (economic rents) and value-recording (conservative accounting) processes on abnormal ROE. I rely on economic theories to charac...