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dc.contributor.authorKetterer, Simeonen_UK
dc.contributor.authorDionysiou, Dionysiaen_UK
dc.contributor.authorEierle, Brigitteen_UK
dc.contributor.authorTsalavoutas, Ioannisen_UK
dc.description.abstractWe outline analytically that when testing different implied cost of capital (ICC) measures for validation by employing the Vuolteenaho (2002) framework, the cash-flow news in the validation framework should be defined in a way that considers the model specific assumed sequence of future cash flows. This is based on market’s expectations, as proxied by analysts’ forecasts. We then propose adjusting the cash-flow news proxies accordingly and implement these adjustments empirically. Consistent with the theoretical predications, the results from these tests show that ICC estimates are significantly positively related to realized returns. Informed by these findings, we employ the adjusted proxies in the validation framework and compare the correlation between adjusted and unadjusted for analysts’ bias ICC proxies with realized returns. These tests show no difference in these correlations. This suggests that it is not the analysts’ bias that weakens the validity of ICC measures, as argued by prior literature. It is the proxies in the validation framework that leads to the suggestion in removing analysts’ optimism from ICC measures. Overall, our proposed alternative framework not only unlocks the gate for extensive use of the existing ICC measures but also enables future researchers to develop more reliable and meaningful ICC measures.en_UK
dc.relationKetterer S, Dionysiou D, Eierle B & Tsalavoutas I (2023) Validating implied cost of capital with realized returns by using alternative measures of cash-flow news. <i>British Accounting Review</i>.
dc.rightsThis article is available under the Creative Commons CC-BY-NC-ND license and permits non-commercial use of the work as published, without adaptation or alteration provided the work is fully attributed.en_UK
dc.subjectexpected returnsen_UK
dc.subjectrealized returnsen_UK
dc.subjectcash-flow newsen_UK
dc.subjectimplied cost of capitalen_UK
dc.titleValidating implied cost of capital with realized returns by using alternative measures of cash-flow newsen_UK
dc.typeJournal Articleen_UK
dc.citation.jtitleBritish Accounting Reviewen_UK
dc.type.statusAM - Accepted Manuscripten_UK
dc.contributor.affiliationAccounting & Financeen_UK
dc.contributor.affiliationUniversity of Bambergen_UK
dc.contributor.affiliationUniversity of Glasgowen_UK
rioxxterms.typeJournal Article/Reviewen_UK
local.rioxx.authorKetterer, Simeon|en_UK
local.rioxx.authorDionysiou, Dionysia|0000-0002-1740-2095en_UK
local.rioxx.authorEierle, Brigitte|en_UK
local.rioxx.authorTsalavoutas, Ioannis|en_UK
local.rioxx.projectInternal Project|University of Stirling|
local.rioxx.filenameSK_DD_BE_IT_Cash flow news_Gl_Enlighten_June_30 - accepted.pdfen_UK
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