Feltham-Ohlson Valuation Model & The Value-relevance Of P/B And P/E

The Chinese Securities Markets have developed drastically for several years and created many materials very useful to the accounting researches based on capital markets. Empirical Analysis becomes a vital research method in the domestic fields of accounting and finance, and helps researchers make prolific achievements. This thesis is such an empirical research on the value-relevance of public accounting information in domestic capital markets.Previous research results reveal that domestic securities markets can react to accounting information of listed companies. Nevertheless, how does the markets react? How does the accounting information express their value-relevance? These questions are important not only for academic scholars but for investors in the securities markets. In order to answer these questions, the thesis uses "Feltham-Ohlson Valuation Model" as the theoretical framework and selects Book Value (BV) and Net Earnings (E) as proxies of accounting information to do research. After analyzing the characteristic of Market-to-Book Ratio (P/B ratio) and Price-to-Earnings Ratio (P/E ratio), the thesis uses data from domestic common-shares markets to test the value-relevance of these two ratios. The research data are from Shanghai Stock Exchange and Shenzhen Stock Exchange, including the dealing prices of listed companies in the years of 1994 to 1998 and accounting data from their financial reports of 1993 to 1997.The contents of this thesis are divided into eight sections allocated as below: Section 1 is "Introduction" about the backgrounds of selecting research targets and the brief contents of whole thesis. Section 2 is "Literature Review"; "Research Model" and "Research Hypothesizes" are allocated as Section 3 and 4. Section 5 is "Research Methodology" introducing the methods of building portfolios. Section 6 is "Research Sample", including data source, sampling rule and descriptive statistic. The data dealings and results are in the Section 7 "Research Results". The last section is "Conclusions" about summary of research results and limitations as well as comments of further researches.