---
_id: '5113'
abstract:
- lang: eng
  text: 'Standard equity valuation approaches (i.e., DDM, RIM, and DCF model) are
    derived under the assumption of ideal conditions, such as infinite payoffs and
    clean surplus accounting. Because these conditions are hardly ever met, we extend
    the standard approaches, based on the fundamental principle of financial statement
    articulation. The extended models are then tested empirically by employing two
    sets of forecasts: (1) analyst forecasts provided by Value Line and (2) forecasts
    generated by cross-sectional regression models. The main result is that our extended
    models yield considerably smaller valuation errors. Moreover, by construction,
    identical value estimates are obtained across the extended models. By reestablishing
    empirical equivalence under non-ideal conditions, our approach provides a benchmark
    that enables us to quantify the errors resulting from individual deviations from
    ideal conditions, and thus, to analyze the robustness of the standard approaches.
    Finally, by providing a level playing field for the different valuation approaches,
    our findings have implications for other empirical settings, for example, estimating
    the implied cost of capital. '
article_type: original
author:
- first_name: Nicolas
  full_name: Heinrichs, Nicolas
  last_name: Heinrichs
- first_name: Dieter
  full_name: Hess, Dieter
  last_name: Hess
- first_name: Carsten
  full_name: Homburg, Carsten
  last_name: Homburg
- first_name: Michael
  full_name: Lorenz, Michael
  last_name: Lorenz
- first_name: Sönke
  full_name: Sievers, Sönke
  id: '46447'
  last_name: Sievers
citation:
  ama: 'Heinrichs N, Hess D, Homburg C, Lorenz M, Sievers S. Extended dividend, cash
    flow, and residual income valuation models: Accounting for deviations from ideal
    conditions. <i>Contemporary Accounting Research (VHB-JOURQUAL 4 Ranking A+)</i>.
    2013;30(1):42-79. doi:<a href="https://doi.org/10.2139/ssrn.1145201">10.2139/ssrn.1145201</a>'
  apa: 'Heinrichs, N., Hess, D., Homburg, C., Lorenz, M., &#38; Sievers, S. (2013).
    Extended dividend, cash flow, and residual income valuation models: Accounting
    for deviations from ideal conditions. <i>Contemporary Accounting Research (VHB-JOURQUAL
    4 Ranking A+)</i>, <i>30</i>(1), 42–79. <a href="https://doi.org/10.2139/ssrn.1145201">https://doi.org/10.2139/ssrn.1145201</a>'
  bibtex: '@article{Heinrichs_Hess_Homburg_Lorenz_Sievers_2013, title={Extended dividend,
    cash flow, and residual income valuation models: Accounting for deviations from
    ideal conditions}, volume={30}, DOI={<a href="https://doi.org/10.2139/ssrn.1145201">10.2139/ssrn.1145201</a>},
    number={1}, journal={Contemporary Accounting Research (VHB-JOURQUAL 4 Ranking
    A+)}, publisher={Wiley Online Library}, author={Heinrichs, Nicolas and Hess, Dieter
    and Homburg, Carsten and Lorenz, Michael and Sievers, Sönke}, year={2013}, pages={42–79}
    }'
  chicago: 'Heinrichs, Nicolas, Dieter Hess, Carsten Homburg, Michael Lorenz, and
    Sönke Sievers. “Extended Dividend, Cash Flow, and Residual Income Valuation Models:
    Accounting for Deviations from Ideal Conditions.” <i>Contemporary Accounting Research
    (VHB-JOURQUAL 4 Ranking A+)</i> 30, no. 1 (2013): 42–79. <a href="https://doi.org/10.2139/ssrn.1145201">https://doi.org/10.2139/ssrn.1145201</a>.'
  ieee: 'N. Heinrichs, D. Hess, C. Homburg, M. Lorenz, and S. Sievers, “Extended dividend,
    cash flow, and residual income valuation models: Accounting for deviations from
    ideal conditions,” <i>Contemporary Accounting Research (VHB-JOURQUAL 4 Ranking
    A+)</i>, vol. 30, no. 1, pp. 42–79, 2013, doi: <a href="https://doi.org/10.2139/ssrn.1145201">10.2139/ssrn.1145201</a>.'
  mla: 'Heinrichs, Nicolas, et al. “Extended Dividend, Cash Flow, and Residual Income
    Valuation Models: Accounting for Deviations from Ideal Conditions.” <i>Contemporary
    Accounting Research (VHB-JOURQUAL 4 Ranking A+)</i>, vol. 30, no. 1, Wiley Online
    Library, 2013, pp. 42–79, doi:<a href="https://doi.org/10.2139/ssrn.1145201">10.2139/ssrn.1145201</a>.'
  short: N. Heinrichs, D. Hess, C. Homburg, M. Lorenz, S. Sievers, Contemporary Accounting
    Research (VHB-JOURQUAL 4 Ranking A+) 30 (2013) 42–79.
date_created: 2018-10-31T07:58:17Z
date_updated: 2026-04-09T08:22:32Z
department:
- _id: '275'
doi: 10.2139/ssrn.1145201
extern: '1'
intvolume: '        30'
issue: '1'
jel:
- G12
- G14
- M41
keyword:
- Dividend Discount Model
- Residual Income
- Discounted Cash Flow
- Dirty Surplus
- Terminal Value
- Valuation Error
language:
- iso: eng
main_file_link:
- url: http://onlinelibrary.wiley.com/doi/10.1111/j.1911-3846.2011.01148.x/abstract
page: 42-79
publication: Contemporary Accounting Research (VHB-JOURQUAL 4 Ranking A+)
publication_status: published
publisher: Wiley Online Library
quality_controlled: '1'
related_material:
  link:
  - relation: earlier_version
    url: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1145201
status: public
title: 'Extended dividend, cash flow, and residual income valuation models: Accounting
  for deviations from ideal conditions'
type: journal_article
user_id: '115848'
volume: 30
year: '2013'
...