Financial Market Data Versus Accounting Data: Which Better Explains Stock Returns?

This paper presents the comparison of how financial market and accounting data affect stock prices and returns. The goal was to ascertain whether financial information or accounting data dominate in evaluating stock prices. Most valuation techniques used by firms are based on models using either accounting variables (earnings, book value, cash flows, research and development expenses) or financial market data (e.g. beta, market value, interest). The answer is of great importance for valuators and investors as it will help them focus on the most important variables and make better valuations and choices. This answer is also important for accounting standard setters as the preferred method will serve as an indicator for the quality of financial statements and their importance to users. The paper contributes to the existing literature in the fields of value relevance of accounting information and firm valuation and accounting standards (e.g. International Financial Reporting Standards, United States General Accepted Accounting Principles). To answer this question, share prices were estimated based on financial data using the capital asset pricing model and for accounting data, using Ohlson’s model. The results were tested for both methodologies by comparing estimated share prices with actual ones. The greater the correlation between the two variables the better the explanatory power of the model. The focus was on S&P 500 firms for the period 2002–2017.

     

Adoption of Activity-Based Costing: A Survey of the Education Sector of Greece

The need to invest in education becomes evident during difficult economic periods. Nevertheless, the lack of sufficient financial resources leads educational institutes to form competitive cost strategies. Despite the increasing competition in the education sector, educational institutes usually refrain from using complex cost methods to improve their operations. In this study, we chose the activity-based costing (ABC) method to understand the reaction of educational institutes when they are confronted by the implementation of innovative cost methods. An institute willing to implement ABC should be capable of comprehending the associated operational adjustments. This study investigates the education sector’s potential in adapting to the ABC method to improve cost management. Additionally, factors that prevent educational institutes from making cost strategy reforms were also observed. Initially, we conducted semi-structured interviews of experts to develop our research instrument. The survey was then applied to 152 educational institutes located in the seven most populous regions of Greece. The findings of the hierarchical regression analysis indicate that educational institutes are not capable of accurately allocating costs and they lack specific data concerning overheads. However, the sector is more eager to implement sophisticated methods for increasing competitiveness than was anticipated.     

The Reliability of Impairment Tests： The Case of Vessels

For a shipping company, the vessel is the most valuable and important asset. In most cases, the value of the vessel is the bigger part of total assets. Under International Accounting Standards （IAS） and also United States Generally Accepted Accounting Principles （US GAAP） （IAS 36 and Statement of Financial Accounting Standards （SFAS） 144 respectively）, entities are required to conduct impairment tests where there is an indication of impairment of an asset. It is of high importance that the assumptions and the methodology of these tests be right, in order for the results of these tests to be valid. Always, there is the risk that the accountant manipulates the test in order to avoid any impairment losses. Our purpose is to examine the way that the results from these tests are related with market values. Also, we aim to examine under what test assumptions the results from these tests are close enough to market values of vessels.