Residual Income Model And The Value Of Equity Investment Research

Stock equity valuation is the focus of analysis of stock value.Recently, with the fast development of world economy and rapid expansionof global capital, it has been a difficult problem in the circles of theoryand practice to make a reasonable estimation to the stock value of listedcompanies. The thesis uses residual income theory proposed by Ohlson(1995)to analyze deeply the stock equity valuation issue while combining fullythe listed companies’fundamental financial analysis. On the basis, thethesis researches the dynamic relationship and effects of durationbetween the stock intrinsic value and future stock return. The thesis hasfive chapters in all.Chapter one is the introduction. In this section, it mainly describesthe research background, motivation, research status at home and abroad,the thesis’structural arrangement, research approach, the innovationand limitation. Among them, it emphatically classifies and comparativelyanalyzes the research status at home and abroad, and leads to the researchcenter of the subsequent chapters.Chapter two is a brief review of the representative valuation theoriesin the development of financial theory. The details include cash flowdiscount theory, efficient market hypothesis, asset pricing theory andresidual income valuation theory. Among them, it emphatically describesand demonstrates the principle of residual income theory. These valuationtheories jointly make a good theoretical support for the followingempirical research.As one of the core content of this paper, the third chapter puts alot of time and effort to design and test residual income dynamic linearinformation model (LIM). We have Chinese listed companies’annualfinancial panel data as the basis of empirical research, considering thefactor of market information transmission efficiency, using the CAPMmodel to calculate the cost of stock equity(the rate of return requiredby shareholders), and then we innovate and demonstrate the original LIM.On this basis, we test the new LIM and the conclusions suggest: when weconsider the capital expenditure and the free cash flow as value-relevantinformation, the explanatory power of LIM has a significant improvement, and there is a strong positive relationship between the two-period laggedcapital expenditure and the current residual income, while the one-periodlagged free cash flow has an obvious negative effect to the currentresidual income.Chapter four is a practical application of the residual incomevaluation theory. In this chapter, we emphatically study the dynamicrelationship between stock intrinsic value and its future income. On theresearch basis of chapter three, we use new residual income model tocalculate the theoretical value of the sample stocks, and group the samplestocks by value-price ratio (V/P), and then we research the relationshipand effect duration between stock intrinsic value and the next sevenyears’accumulated incomes. The conclusion suggests that: the higher V/Pratio groups of stocks have higher accumulated mean incomes than the lowergroups, and the duration when the finding can play a guiding role on thevalue investors is probably between half a year and six years. In addition,the thesis makes a further research on the capital expenditure, free cashfollow and future stock income. The results indicate that: The highercapital expenditure per share is, the lower free cash follow per shareis, and the higher the future accumulated mean incomes of stocks of firmare. Note particularly, the capital expenditure per share has asignificant influence on the long-term incomes of stocks, while the freecash follow per share is more important on the short-term incomes ofstocks.Chapter five is summery and outlook. In this part, we summarize allof the contents and conclusions of the thesis, and make explanation tothe thesis’research limitations. And in the end, we look forward to thefuture research directions of residual income theory according to themarket development trends.