Applicability Analysis Of Residual Income Pricing Model

Asset valuation is one of the important contents in the field of corporate finance. It promotes reform of modern enterprise system of commercial bank, improves market management and helps investors for investment objectives to reduce risk of the investment. Visibly, asset valuation has become the focus among academic or practical circles.This paper points out the obvious defects of the traditional pricing models. Dividend discount model (DDM)and free cash flow discount model(FCFM) have an over reliance on forecasts of future dividends or free cash flow and fail to make full use of accounting information, causing huge damage of information efficiency. Then residual income valuation model (RIVM) makes full use of accounting information, overcoming the defects of the traditional pricing model in a certain extent. Thus, this paper based on the theory of the residual income valuation model, to study the applicability of commercial banks. Reformations of accounting system and the disclosure system of our country commercial bank gradually meet hypothesis of RIVM- the clean surplus and linear dynamic condition. The paper focuses on practice, as the example of X bank, using RIVM assesses the equity value on the in December 31,2014.In the process, the paper based on the time analysis method and CAPM to forecast related parameters evaluate. Further, the paper analyzed the risk factors of X bank’s equity value assessment. It is found that the estimated equity value in December 31,2014 was 31.02 Yuan per share. According to stock price, the stock value of the bank was severely underestimated, so this stock has long-term investment value. Admittedly, the study has certain defects that the new criterion gradually realizes the connection with the international accounting standards, but the effect of fair value on the effectiveness of the model is also needed to study further.