On International Accounting Valuation

38 Pages Posted: 30 Apr 2004

See all articles by Jing Liu

Jing Liu

The Cheung Kong Graduate School of Business

Date Written: April 2006

Abstract

This paper develops an accounting based equity valuation model for multinational firms, and uses the model to examine the forecasting and valuation properties of foreign currency gains and losses (TGL). It shows that TGL can be systematically decomposed into a core component and a transitory component; and because the two components are negatively correlated, the combined effect is that TGL is "more transitory" than transitory earnings, mapping into value with a weight between zero and one. The analysis helps to resolve the classical debate on the value relevance of TGL by showing that the opposing views are special cases of a more general framework.

Keywords: foreign currency translation, equity valuation, accounting, valuation, TGL

JEL Classification: G12, G15, M41, M47

Suggested Citation

Liu, Jing, On International Accounting Valuation (April 2006). Available at SSRN: https://ssrn.com/abstract=537002 or http://dx.doi.org/10.2139/ssrn.537002

Jing Liu (Contact Author)

The Cheung Kong Graduate School of Business ( email )

1 East Changan Avenue, Oriental Plaza
E3/3F
Beijing
China

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