Developing Expected Forwarded Counter (EFW)

Developing Expected Forwarded takings (EFW)Abstract receiving set battle net incomes have emerged as adaptable and low cost net fakes. Expected in advanceed waiter (EFW) is a extend seam system of measurement introduced to deal with the problem of inconside regularize demeanor in order to provide honest routing. This root proposes an enhancement to the EFW, by considering congestion incurred referable to takeing only high prime(prenominal) paths. The doing of proposed mensural is evaluated through simulation. Simulation results show that over twain routing effect is change magnitude in terms of throughput and software package bringing ratio.IntroductionWireless troth Network (WMN) is a promising technology for the next generation radio set technologies. The Mesh Networks are self-organized, self-configured and easily adaptable to different traffic requirements and network changes. Routing is a challenge in Wireless Mesh Network (WMN) due to unpredictable va riations of the radio environment.Initially, to select a path with highest delivery crop in piano tuner mesh network, deliberates that capture unite character reference have been introduced. But, to the highest degree of these deliberates are designed by take for granted that each radio receiver mesh courser participates honestly in forwarding process. slice this assumption may not be valid in posture of selfish routers which may get profit from not forwarding all traffic. Selfish intentionrs utilize the network resources for its own benefit but disinclined to spend for others. Such selfish behavior reduces network delivery reliability. poetic rhythm have been introduced to detect and exclude selfish inspissations in a route to destination. These metrics do not consider quality of links, hence cannot select best path from source to destination.Cross grade metrics were utilize to consider both link quality and selfish behaviour of knob 2 in order to select a high performance path. This winning of solutions may ca utilise only high quality to get employ and other links allow get unused. This will make links to be congested seriously and in turn cause performance degradation.In this paper we propose metric that combines link quality and congestion information from mackintosh seam and forward reliability of node from routing layer.The stand-in of this paper is structured as follows. segment II discusses related work. Section III illustrates proposed work. Section IV presents results obtained through simulating proposed metric in similarity with ETX and EFW.Related workSeveral works presented in the recent explore literature focus on reliable selective information transmission in wireless multi hop networks with selfish participants.In recent years, several routing metrics have been proposed to select the path with the highest delivery rate in wireless mesh networks. The essence of all these metrics lies in the selection of reliable net work paths, avoiding lossy wireless links prone to transmission errors. slightly of these are discussed below.ETX (Expected Transmission presser)Routing metrics for wireless mesh networks like ETX gain a probabilistic model to represent the transmission reliability of a wireless link. Specifically, ETX measures theexpected calculate of transmissions, including retransmissions, needed to square uply send a unicast packet over a wireless link. In order to fancy ETX, it is necessary to estimate thepacket loss probability in both directions since, in wireless networks base on the IEEE 802.11 protocol, the destination must agnise each received data frameLet (i, j)be a wireless link launch between node i and jPij and pji foretell the packet loss probability of the wireless link(i, j) in forward and filch directions separately.The probability of a successful transmission on the wireless link(i, j)can whence be computed asPs,ij= (1pij)(1pji).Then, the expected number of transmi ssions necessary to deliver the data packet, considering both its transmission and the successive acknowledgment as required by the IEEE 802.11 protocol, can be evaluated according to expressionDespite the purpose of selecting the most reliable paths, ETX does not model accurately the delivery rate of a network link, since it does not consider the forwarding behavior of the nodes that have established that link. In particular, ETX and its derived metrics do not take into account that a selfish node might discard the packet after its correct reception, if it benefits from not forwarding itEFWTo address the problem caused by the dropping behaviour of selfish participants, we combine the link quality calculated by the ETX routing metric with the forwarding reliability of a relaying node j by alter the probabilistic model on which ETX is based. Let pd,ij be the dropping probability of a network node j((1pd,ij)represents its forwarding probability). Since a network node can drop select ively the traffic sent by its neighbours, the dropping probability of any node j is identified both by the sending node i and the relaying node j. The probability that a packet sent through a node j will be successfully forwarded can be computed as pfwd,ij=ps,ij(1pd,ij).Then, the expected number of transmissions necessary to have the packet successfully forwarded (Expected Forwarding Counter, EFW) can be measured according to the following equation.The first part of equation, which coincides with the ETX metric, considers the quality of the physical and mackintosh layers, whereas our contribution takes into account the network layer reliability. Therefore, EFW represents a cross-layer metric that models both the physical conditions of the wireless medium and the selfishness of the node with which the link is established.In addendum to detecting the misbehaving nodes, the representation of the link reliability provided by the EFW metric permits to use the network paths with the high est delivery performance, without pruning the alternative routes that contain selfish nodes.Proposed workThe disadvantages of this solution are that nodes wanting to transmit packets will attempt to use the same high quality link and cause it congested seriously. And at the same time other links will get unused.mackintosh layer metricOur proposed metric is based on the retransmission mechanism in MAC.The first part of this method is the success rate of transmitting frames based on the average number of retransmissions which we call Frame Transmission aptitude (FTE) 13.Fig. 1 Illustration of the retransmission mechanism at the MAC LayerThe number of retransmissions of RTS and Data frames for eachSuccessful transmission in MAC layer is supposed to represent the quality of that link and congestion instance. The success rate of sending frames is therefore a good estimate of both the quality and congestion of a link. From it the best quality links may be selected.The success rate of eac h link (FTE) is updated when a node beforehand a Data packet to its neighbour and passes it up to the routing protocol.ACK Failure Count denotes the number of Data retransmission and RTS Failure Count denotes the number of RTS retransmission.The kth packet will send from Node S to Node D.The number of retransmission is assumed as Failure (k) and denotes belowFailure (k) = ACK Failure Count (k) + RTS Failure Count (k) (j)Thus FTE (k) between Node S and Node D is formulized as equation (4).It reflects the link quality and congestion situation of links.FTE (k) =We are use this frame transmission efficiency to represent link quality and congestion. It is MAC layer information. From routing layer we consider forward probability estimation. In cross layer fashion we combine information from both MAC and Routing layer to obtain congestion aware EFW.It is computed as followsEnhanced EFW or congestion aware EFW= SimulationSimulation scenarioWe performed simulations with NCTUns6.0 simulator that evaluates performance of the metric in equivalence with EFW using OSPF (Open Shortest Path First) routing protocol.Performance EvaluationTo evaluate the performance of proposed metric in comparison with existing metrics ETX and EFW, the following variables are analysedThroughputpile Delivery RateDrop RateFrom fig1. We can observe that the proposed metric has more throughput than the other routing metrics in wireless mesh networks. By this we can understand that the proposed metric selects better path in bearing of selfish nodes in comparison with other metrics.From fig2. It seems that congestion aware EFW has more packet delivery rate when compared with other metrics.ConclusionIn this paper we introduced an enhancement to existing cross layer metric called Expected forward counter (EFW). In this metric we replaced link quality metric obtained from ETX metric with Frame Transfer Efficiency (FTE) metric which considers not only link quality but also congestion of link. As the proposed metric in cross layer fashion combines MAC layer observations of link quality and congestion with routing layer observations of forward probability estimation, it gives better performance in comparison with ETX and EFW metrics.Simulations results show that routing performance of OSPF in terms of throughput, packet delivery rate and drop rate has been improved in proposed metric.ReferencesS. Paris, C. Nita-Rotaru, F.Martignon, and A. Capone, Cross-Layer Metrics for time-tested Routing in Wireless Mesh Networks , in proc. IEEE/ACM TRANSACTIONS ON NETWORKING, VOL. 21, no 3, JUNE 2013.N. Nandiraju, D. Nandiraju, L. Santhanam, B. He, J. Wang, and D.P. Agrawal, Wireless mesh networks Current challenges and future directions of web-in-the-sky, IEEE Wireless Commun., vol. 14, no. 4, pp. 7989, Aug. 2007.S. Paris, C. Nita-Rotaru, F.Martignon, and A. Capone, EFW A cross layer metric for reliable routing in wireless mesh networks with selfish participants, in Proc. IEEE INFOCOM, Apr. 2011, pp. 576580D.S.J De Couto, D. Aguayo, J. Bicket, and R. Morris. A High-Throughput Path Metric for Multi-Hop Wireless Routing. Wireless Networks, 2005.D. Johnson and G. Hancke, Comparison of two routing metrics in OLSR on power grid based mesh network, Ad Hoc Netw., vol. 7, no. 2,pp. 374387, 2009.Da Guo, Jun Li, Mei Song, Junde Song,A Novel Cross-Layer Routing Algorithm in Wireless Mesh Network in the proc. of IEEE International Conference 2007,pp 1-3,vol-07.Golnaz Karbaschi, A Link-Quality and Congestion aware Cross layer Metric for Multi-Hop Wireless Routing.2nd IEEE International Conference on Mobile Ad-hoc and demodulator Systems Washington, DC USA November 2005.M.E.M.Campista, P. M. Esposito, I.M.Moraes,L.H. M. Costa,O. C.M. Duarte, D. G. Passos, C. V. N. de Albuquerque, D. C.M. Saade, and M. G. Rubinstein, Routing metrics and protocols for wireless mesh networks, IEEE Netw., vol. 22, no. 1, pp. 612, Jan.Feb. 2008.OSPF

Manufacturing and storage of Khoa

Manuf bringuring and stock of KhoaABSTRACTKhoa is a traditionalisticistic dairy w be which is produced in India by both organized and unorganized welkin. It is the base for assorted traditional sweets make in India. Apart from the traditional method of manufacturing khoa some(prenominal) an(prenominal) methods were developed recently for the reconcile and storage of it. In the present r shutdowner I had menti iodind about various technologies available for manufacture and storage of khoa. insane asylumAccording to the National dairy farm Development Board, India the annual reapingion of take out during the year 2007-2008 is 104.8 million tonnes.India has devil types of vault of heavens for the marketing of take out and its products, one is organized sector and a nonher is unorganized sector. The unorganized sector accounts for 88% of number take out production in India and it includes marketing of raw milk and traditional products such as locally manufactured ghee , fresh cheese, and sweets. The organized sector accounts for 10-12% of total milk production in India and it includes the dairy cooperatives and organized underground dairies which produces Western-style dairy serve uped products based on pasteurization. The shargon of organized sector in the total milk production handling is increasing by the years (FAO, 2002).In India out of all dairy products consumed traditional products account for oer 90 percent. In mold to protect the surplus milk from despoilation simple regalees were developed to produce products like curds (yoghurt-like fermented product), Makkhan (butter), Khoa (desiccated milk product), Chhana and Paneer (soft cottage cheese-like cultivated product) and Ghee (clarified butter) (FAO, 2001). And nearly 7% of milk produced in India is converted to khoa (ICMR, 2000).KHOA MANUFACTURING PROCESSIn India khoa is traditionally manufactured by unbroken boiling of milk in a shallow iron or stainless(prenominal) steel vess el to remove moisture and the process continues till the total solid direct is attained in the range of 65 to 72% (Pal and Raju, 2006). As per the ginmill of nutrient Adulteration (PFA), India (1955) rules, khoa sold by whatever variety or name such as Pindi, Danedar, Dhap, Mawa, or Kava which is obtained from overawe or overawe (or goat or sheep) milk or milk solids or a combination there of by rapid desiccation and having not less than 30 per cent milk plump down on dry out weight basis. The Bureau of Indian Standards has given the requirements for three types of khoa, viz. Pindi, Danedar and Dhap in terms of total solids, generative, ash, corrosiveity, coliforms and yeast and mold counts (Indian Standard (IS) 4883, 1980). A stripped-down fat level of 5.5 in buffalo milk is required to extend to the PFA standard. Khoa has been categorized into three major groups i.e. Pindi (for Burfi, Peda), Dhap (Gulabjamun) and Danedar (Kalakand) on the basis of composition, cereal and end use.KHOA MANUFACTURING PROCESS CHEMICAL ASPECTSKhoa contain 75-80% moisture, 25-37% fat, 17 -20% protein, 22-25% lactose, and 3.6-3.8% ash (Aneja et al. 2002).The milk is subjected to senior high-pitched heat temperature during the manufacture of khoa which initiates number of physico-chemical changes resulting in characteristics arresting, textural and structural properties in khoa. The round-the-clock passion will reduce water supply activity, inactivates various milk enzymes and set down pathogenic and spoilage microorganisms apart from development of desirable flavors and texture. The heat process promotes the denaturation and coagulation of milk proteins and the process is more rapid due to foaming and incorporation of air by round-the-clock stirring (Sindhu et al. 2000). The disruption of fat globule membrane and subsequent release of free fat that account for 44.8-62.8 percent of total fat in khoa occurs due to vigorous agitation during heating process of m ilk (Mann and Gupta, 2006). Adhikari et al. (1994) has studied the interaction between milk macromolecules during heating of buffalo milk using Transmission Electron Microscopy (TEM) and ascertained casein paint-casein, casein-whey protein and casein-lactose interaction with gradual heating of milk. The khoa do with buffalo milk and milk of high total solid will have more brown colouring material in the end product and this is due to browning reactions (Gothwal and Bhavdasan1992). Patil et al. (1992) has investigated khoa microstructure using examine electron microscope (SEM) and revealed that khoa consists of wallopingr protein granules made up of partially fused casein micelles and non-micellar proteins. They also observed reduction in the size of protein granules and inter-granular space during on the job(p) or agitation of khoa manufacture process and it also resulted in large amount of fat globules membrane fractions.FACTORS AFFECTING KHOA QUALITYType of milk Buffalo milk is generally used instead of cow milk for the manufacture of khoa due to its higher yield, softer body and smooth texture. The khoa manufactured from cow milk have dry surface, yellow colour, sticky and sandy texture (Pal and Gupta, 1985).Amount of free fat An optimum amount of free fat is necessary for desirable body and textural properties of khoa(Boghra and Rajorhia ,1982).Total solid level in that location is signifi locoweedt positive correlation between total solid level milk and instrumental hardness, gumminess and chewiness of khoa (Gupta et al., 1990).Working of Khoa The formation of large lactose crystals can be reduced through working of khoa when comp bed to un-worked khoa and working results in no perceived sandiness upon storage.EQUIPMENTS USED IN KHOA MANUFACTURING PROCESSKhoa is generally manufactured by halwais in jacketed kettles, which has several disadvantages like poor and inconsistent forest and limited shelf life of about 5 days at 30C (International assem bly on Traditional Dairy aliments, 2007).Most attempts made for up-gradation of the technology of khoa are directed towards mechanization of the process and developing continuous khoa do plants (Aneja et al., 2002). Agrawala et al. (1987) has developed mechanized conical process vat for education of khoa. It consists of a stainless steel conical vat with a retinal cone angle of 60 and steam-jacket partitioned into 4-segments for efficient use of thermal energy and less heat loss.Due its batch type of operation, it is suited only for making limited quantities of the product. National Dairy Development Board (NDDB) which is situated at Anand (Gujarat), India has developed an given Scraped go on Heat Exchanger (ISSHE) for continuous manufacture of khoa (Punjrath et al., 1990). Concentrated milk of 42 to 45% total solids is used as feed in this machine and its inclination permits the formation of a puss of boiling milk critical to formation of khoa. Thin Film Scraped Surface Hea t Exchanger (TSSHE) frame has developed by Dodeja et al. (1992) at NDRI for the continuous manufacture of khoa and it consists of two Scraped Surface Heat Exchangers (SSHE) which are arranged in a cascade fashion. In this machine milk is tough in first SSHE to about 40-45% Total Solids and finally to khoa in the second SSHE. yet feed for this unit is buffalo milk and thus rendering it suitable for organized small and large dairies and entrepreneurs which is not in the case of Inclined Scraped Surface Heat Exchanger.The capacity of both TSSHE and SSHE is about 50 kg khoa per hour and many organized dairies have adopted these continuous khoa making machines. Three-stage continuous khoa manufacture unit has been developed by Christie and Shah (1992). It has three jacketed cylinders primed(p) in a cascade arrangement which helps in easy enthral of milk from one cylinder in to other and it works as heat exchanger. The heat exchangers are installed with a mechanism of providing incli nation and the shift allows the movement of the contents in longitudinal direction. The unit has a inconsistent pulley drive which helps in speed adjustment and it is highly wide requiring too much flooring area. (Pal and Cheryan, 1987) and (Kumar and Pal, 1994) have implemented Reverse osmosis (RO) technique for the manufacture of khoa from cow milk and buffalo milk respectively. This process comprises pre-concentration of milk (2.5-fold for cow milk and 1.5-fold for buffalo milk) using RO process followed by desiccation in a steam-jacketed open pan for the manufacture of khoa.The final product obtained by this membrane process was found to be identical to the conventionally prepared product. This process saves energy during the initial concentration of milk. In order to make this process continuous jacketed pan should be replace with SSHE. varied workers incorporated whey solids in the form of whey protein concentrate (WPC) in the milk and reported that increased add-on of W PC in the milk resulted in large granulation in khoa and increased yield (Dewani and Jayaprakasha, 2002).FOOD synthetic rubber AND QUALITY MANAGEMENT ISSUES DURING KHOA STORAGEDue to higher nutrients and high water activity (.96),Khoa is easily Susceptible to growth of bacteria. Staphylococcus aureus and Bacillus genus Cereus are the main contaminating micro organisms in khoa and they cause many food-borne diseases. To prevent and reduce microbiological hazard from khoa HACCP should be applied. The microbic quality of Khoa is initially good during production time and it will gradually deteriorate during storage and marketing. The main Critical Control Point for the deterioration was identified as airtight packaging. This problem can be solved through changing the packaging material to muslin cloth which allows free air flow, reduced the microbial proliferation (ICMR, 2000).METHODS TO INCREASE STORAGE LIFE OF KHOAThe storage life of khoa is only two to three days, under ambient co nditions, and 15-20 days under refrigerated conditions (Ramzan and Rahman, 1973). Rancidity is one of the reason which deteriorates quality of khoa and it adversely a?ects storage life of khoa (Bashir et al., 2003).Addition of thousand sorbate e?ectively improves the storage life of khoa at higher temperatures. Jha and Verma(1988) have observed increased storage perceptual constancy of khoa for 40 days by addition of potassium sorbate. Other workers also stated that the storage life of khoa can be enhanced by using di?erent types of food preservatives and antimicrobial agents (Wadhawa et al., 1993). At elevated temperatures the storage stability of freshly prepared khoa can be adversely a?ected. By measuring free fatty acids, hydrogen peroxide value and iodine value we can determine storage stability of khoa. The free fatty acid, peroxide and iodine values for freshly prepared khoa were 0.025%, 0.38 meq/kg and 80, respectively. The increase in free fatty acid and peroxide value an d decrease in iodine value are the indicators of development of rancidity in khoa during three months of storage at elevated temperature. By adding BHA and BHT we can retard the development of rancidity in khoa on storage. But, BHT will act comparitively better than BHA. Therefore, we can increase the storage stability of khoa by adding synthetic antioxidants like BHA and BHT at elevated temperatures (Rehman and Salariya, 2005).CONCLUSIONAlthough so many technologies are developed for the production and storage of khoa, there is a still a need of investigation of chemical and physical aspects during manufacturing of khoa in order to construe factors responsible for quality. And all the known technologies of manufacturing of khoa should be transferred to small holder farmers who are the major contributors of milk production in India .So that they can increase their prices of products by producing products which will meet the modern quality standards.REFERENCESAdhikari.A.K., Mathur.O .N. and Patil.G.R. (1994). Interrelationships among Instron textural parameters, composition and microstructure of khoa and gulabjamun made from buffalo milk, ledger of Food accomplishment and Technology, 31 (4) .pp.279-284.Agrawala .S. P., Sawhney.I. K. and Bikram Kumar. (1987). Mechanized conical process vat. Patent no. 165440.Aneja.R. P.,Mathur.B. N., Chandan.R. C.,and Banerjee.A. K.(2002). Technology of Indian milk products, 1st Ed.,Dairy India family Book, Delhi.pp.126-128.Bashir.N. Rehman. Z. U., Syed. Q. Kashmiri.M. A. (2003). Effect of potassium sorbate on the physicochemical characteristics of milk concentrate (khoa) during disparate storage conditions. Pakistan Journal of Scientific Research, 55.pp. 103-109.Boghra.V. R. and Rajorhia.G.S. (1982). Utilization of pre-concentrated milk for khoa making, Asian Journal of Dairy Research. 1.pp.6 -12.Christie. I. S. and Shah,.U. S. (1992). Development of a three stage khoa making machine. Indian Dairyman.44 (1).pp. 1 4.Dewan i. P. P. and Jayaprakasha. H. M. (2002). Effect of addition of whey protein concentrate on physico-chemical and sensory characteristics of khoa and khoa based sweets, Journal of Food Science and Technology.39 (5).pp.502 506.Dodeja.A. K., Abichandani. H., Sarma.S. C. and Pal.D. (1992). Continuous khoa making system design, operation and performance, Indian Journal of Dairy Science. 45(12).pp. 671 674.FAO.(2001).Report on the FAO E-mail Conference on Small-scale Milk Collection and Processing in create Countries. Chapter 3, pp .15.FAO. (2003).A Review of Milk Production in India with Particular Emphasis on Small-Scale Producers,pp.6.FAO. (2002). Annex I Critical issues for poor people in the Indian dairy sector on the thresold of a new era.Gothwal.P.P. and Bhavadasan.M. K. (1992). Studies on the browning characteristics in dairy products, Indian Journal of Dairy Science, 45 (3).pp. 146-151Gupta. S.K., Patil.G.R., Patel. A.A., Garg.F.C. and Rajorhia.G.S. (1990). Instron texture prof ile parameters of khoa as influenced by composition, Journal of Food Science and Technology, 27 (4).pp. 209-213http//nddb.org/statistics/milkproduction.htmlhttp//www.dairyforall.com/indian-khoa.phpIndian Council of Medical Research (ICMR). (2000). Application of Hazard epitome and Critical Control Point for improvement of quality of processed foods,Vol. 30, No. 5.International Conference on Traditional Dairy Foods. (2007). National Dairy Research Institute, Karnal (India), pp. 29.Jha.Y. K. Verma.N. S. (1988). Effect of potassium sorbate on the shelf life of khoa, Asian Journal of Dairy Research, 7.pp. 195-198.Kumar. S. and Pal.D. (1994) . Production of khoa from buffalo milk concentrated by snarf osmosis process, Indian Journal of Dairy Science. 47(3).pp.211 214.Mann.B. and Gupta.A.( 2006). Chemistry of milk in relation to manufacture of traditional dairy products,In compendium of Developments in traditional dairy products, Centre of Advanced Studies in Dairy technology, NDRI, K arnal. pp.12-17.Pal.D. and Cheryan.M. (1987). Application of reverse osmosis in the manufacture of khoa Process optimization and product quality, Journal of Food Science and Technology, 24(5).pp. 233 238.Pal.D. and Gupta.S. K. (1985). Sensory evaluation of Indian milk products, Indian Dairyman, 37(10).pp. 465-474.Pal.D and Raju.P.N. (2006). Developments in the manufacture of heat desiccated traditional milk desserts,In compendium of Developments in traditional dairy products, Centre of Advanced Studies in Dairy technology, NDRI, Karnal. pp.18-25.Patil.G.R. Patel.A.A., Allan-Wojtas. P. and Rajorhia. G.S. (1992). Microstructure and texture of khoa, Food Structure, 11155.Punjrath.J.S., Veeranjamlyala.B. Mathunni.M. I., Samal.S.K. and Aneja.R. P. (1990). Inclined scraped surface heat exchanger for continuous khoa making. Indian Journal of Dairy Science. 43(2).pp.225 230.Ramzan. M., and Rahman.R. U. (1973). E?ect of storage time and temperature on the quality of cow milk khoa, Pakistan Journal of Science, 25.pp. 149-154Sindhu. J.S., Arora .S. and Nayak. S. K.( 2000). Physico-chemical aspects of indigenous dairy products, Indian Dairyman, 52 (10).pp. 51-64.Wadhawa. B. K., Gandhi. D. N., and Goyal.G. K. (1993). Enhancement in the shelf life of khoa,Indian Food Packer, 47.pp.5-53.Zia-ur Rehman and A.M. Salariya.(2005).E?ect of synthetic antioxidants on storage stability of Khoa a semi-solid concentrated milk product , Food Chemistry 96 (2006) .pp.122-125.

Interbrand Brand Valuation

Inter score steel military ratingThe Inter vane method acting is extremely popular for valuation of disgraces and has been adopted in some(prenominal) practical purposes such as taint valuation of various food-related and drinking strike offs such as Coca-Cola, Pepsi, Kelloggs, Cadbury, Wrigleys and Nestle. This method majorly discusses about the extra lucre an associated mark off can gene judge for a community or companies over a considerable period of time. The instigant harbor is then calculated to be the stupefy re nurture of these discounted additional dough which the brand gene posts.The method indicates the take away for choosing the target commercialises by segmentation of the food markets through various parameters such as geographic, demographic and psychographic variables. After analysing the markets and performing a proper pecuniary analysis in the form of thoughtd revenues, units of sales, associated costs and forecasts, we need to analyse what ar t he lease drivers of the brand. For example, in this case of evaluating the Kingfisher brand, some of the parameters of demand drivers would be related to the take of need of the brand, the elasticity of pricing the brand, the number of competitors and substitutes in a pr matchless geographical region, etc. A competitive benchmarking analysis is done to understand the gaps associated with the branding processes and st driftgies adopted by Kingfisher in comparison to its competitors. Finally, the brand salary atomic number 18 calculated and the brand discount rate in diametric specific periods for the relevant time survey to find the brand nurture which is the crystallise present value of forecasted brand earnings of Kingfisher. ending of Kingfisher brands burden average first derivative coefficient EBITWe will calculate the additional EBIT by call the formula-Differential EBIT = (EBIT) branded (EBIT) unbrandedWhere EBIT i.e. Earnings before pursual and taxes is the operable(a) network of the company. It is stir to Net Sales Total Expenditure.In order to calculate the first derivative EBIT, we hand over used a alike brewery company in India, called Mount Shivalik Breweries Industries (MSBL), which is a public listed company which has been in exis exce since 1972. The company is primarily into the business of manufacturing and supplying draught beer in the Union territory of Chandigarh. It caters to both the strong beer segment as substantially as the mild beer segment, with the flagship brands being Thunderbolt and Golden Peacock. Although, 95% of the beer supplies to the pubs and prohibit in Chandigarh are being catered from MSBL, it still doesnt match to the brand tone of voice of Kingfisher which is globally recognized. Hence, we cast off preferred to use MSBL as an unbranded company. Hence, Kingfishers differential EBIT is-(EBIT) Kingfisher (EBIT) MSBLWe have calculated the differential EBIT for the last three fiscals and then th e present value has been found out by compounding them with the discount rate used as average inflation rate. The calculations are shown below-We have taken a conservative approach of considering the brand horizon to be around three years because efforts of brand building like forbidding investment in marketing of the brand, R D efforts for inventing new technologies, etc have an effect of at least 3 years after which in that respect is a need for change in business process restructuring. The EBITs are proportionately weighted according to the standard amortizing schedule of 123, with the most recent year getting the highest weightage of 3. The relevant calculations are shown below-Average Inflation Rate for the past 3 years = 10.5 %De upshot of brand differential earningsThe formula for brand differential earnings is given below- spot differential earnings = Weighted differential EBIT capital charge TaxThe capital charge is estimated by multiplying the weighted average cost of capital (WACC) with the amount of capital employed by the Kingfisher brand (part of United Breweries Limited group). The average WACC is estimated by using a period of past five years and forecasting the information for undermentioned five years. The WACC calculation for the United Breweries Limited (UBL) company is shown below-The important for the United Breweries patience has been taken from capital for the years 2005 to 2010. The forecasted years information i.e the beta for years 2011 to 2015 has been estimated by using the 3-year touching average method, wherein the beta for year 2011 is the average of the betas for the preceding three years 2008-2010. Similarly, the D/E ratio for future years has been calculated by using the 3-year go average method. The cost of equity for each year has been calculated by using the CAPM formula given below-Ke = Rf + Beta* market place Risk PremiumThe average WACC is calculated by using the 3-yr moving average method of the forecasted years 2013-2015. The calculations are shown below-The brand differential earnings calculations are shown below-Determination of Brand Strength and Brand MultiplierThe assessment of brand talent takes into account the by-line doers-leaders ability to influence the marketStability ability to concur a consumer franchiseMarket vulnerability of market demand to changes in tastes or technology International Scope cross national/cultural electromotive force trim long term appeal to consumers Support strength of communications Protection security of the brand owners legal or property rightsThe greater is the brand strength of a company, the higher is its associated brand eight-fold. Typically, brand ternary ranges from 6 to 20.We have tried to quantify the movers of brand strength by relating each factor with the quantifiable variables related to the operational performance of the UBL company in popular and the Kingfisher brand specifically. They are shown below- Leadership factor of the brand can be estimated by looking at the market share, net profit shore (NPM) it generates, market capitalization (Mkt. Cap.), and investor returns (ROE), estimated revenue return (Rev. CAGR) and estimated profit growth (NP. CAGR) over the years. Stability factor can be measured by the volatility of the net profit margin (NP var%) of the Kingfisher brand over the years We have compared the Kingfisher brand to its jacket ten competitors in the breweries industry and hence we did not merged any distinguishing factor of the brand in terms of distinct market conditions. International orbit of the brand can be measured by the level of exports it generates The course factor of Kingfisher brand or any brand in general can be estimated by correlating with the change in return on assets. Typically, return on assets would be higher for high-quality assets. Brands tend to perform die with quality assets available for outpution, sales and marketing and consistent research and de velopment. The level of Support for a brand would be invented by additional investments to maintain the goodwill of the brand. The brands Protection could be quantified by analysing its threats against acquisition, bankruptcy and separate financial distress costs related to management. The most efficient measure we could use to quantify the protection is interest coverage ratio (ICR).We have presume that all the to a higher place seven parameters have an check weight to the brand strength of Kingfisher, except the market factor which we have taken as zero.Brand Strength = Leadership + Stability + Market + Internationality + Trend + Support + ProtectionThe operational performance of the top seven companies (current data available for seven companies only) of the breweries industry in India has been compared to that of Kingfisher in order to estimate the brand strength of Kingfisher. The relevant data has been extracted from Capitaline. The columns highlighted in yellow turn ou t negative value and needs to be normalized as shown by the data below. The remaining columns have already been normalized. The seven companies have been ranked from top to bottom on the basis of market share they hold which is equal to company net sales as a lot of industry net sales. Similarly market capitalization has been normalized as a percentage of total industry market capitalization. Export revenues and S A (Selling and Administration) expenses are a percentage of the total net revenues and total expenses of the company respectively. The revenue CAGR and NP. CAGR are calculated by averaging the growth rates of revenues and net profit respectively for the past three years i.e. 2008-2010.The columns in yellow are normalized by the process of appointment highest weights to the maximum value and assigning worst weights to the minimum value. For example, in order to normalize the net profit margin (NPM), we have assigned a weight of 6 to Globus Spirits followed by a 5 to Moun t Shivalik and finally going on assigning weights of 4, 3, 2 and 1 in the descending order to the remaining companies with a weight of 0 being assigned to SKOL Breweries, which has the minimum NPM of -10.39. All the new(prenominal) negative values are also given weights ranging from 0 to 1 depending on their proportion i.e. a higher negative value of -3.93 would be given a visit weight of declare 0.1 compared to a lower negative value of -2.54 which would be given a weight of say 0.5. The method of assigning weights to negative values has been purely done on a subjective basis and there is scope of further improvements. The other columns have also been normalized in the same fashion. The normalized plank is shown in the contiguous page-We can now calculate the consolidated brand strength based on the measured values of the quantifiable variables which relates to the seven factors accoun tabulate for brand strength.The consolidated values of each of the seven factors are shown in the next page below. The brand strength factors such as leaders and trend which are measured by more than one quantifying variables are consolidated and then the average of the consolidated value is taken to reflect the equivalent factor. This is shown in the next page.The next step which we need to incorporate is to find out the relationship between brand strength and brand multiplier. The Interbrand S-curve is shown below.The S-curve function is approximated using a sigmoid function wherein we have the relation, brand multiplier = f (brand strength). From the paper Valuation of Brands and Intellectual Capital pen by Pablo Fernandez, we have estimated the brand multiple of Kingfisher brand by interpolating its corresponding brand strength using the source as the four values of brand strength and corresponding brand multiples mentioned in the paper.From the S-curve above, we can slightly estimate that the brand multiple for a brand strength of 1 would be equal to 0.7. A brand strength of 38 has a brand multiple of 6.3 as shown in the table beside. Hence, the brand multiple of Kingfisher brand for a brand strength of 16.63 % would be equivalent to-Brand multiple = 0.7 + (6.3 0.7)/ (38-1)*16.63 = 3.217Hence brand value of Kingfisher brand is estimated to be equal to-Brand Value of Kingfisher = brand multiple*Kingfisher brand differential earnings= 3.217*72.87 = 234.42 croresRoyalty Relief Brand Valuation MethodThis method is one of the most efficient methods currently used for brand valuation as per industry practises. In this approach, a royal line rate is estimated by the brand owner/licensor, which needs to be paid by the third company/licensee for using the brand defined under the guidelines of Intellectual Property Rights (IPR) usage. The brand value would then be determined by the present value of the royal house stream after taxes. The methodology used in the royalty savings method or the royalty relief method comprises of the following steps- vi ew the branded net sales for the provision horizon (generally three to five years) Determine a reasonable royalty rate that the two unrelated parties would have set for the transfer of comparable brands in an arms length transaction Multiply the estimated royalty rate by the projected sales of the brand over its economical life. The result represents annual royalty savings Apply a fiscal charge in each period to estimate the after-tax royalty savings for each Estimate the brands perpetual growth rate, economic useful life and discount rate Discount the royalty stream after taxes at present valueThe royalty rate used for estimating the future royalty streams in the planning horizon, depends on several factors. They are- The brand strength The duration and termination provisions of the agreement The licenses exclusivity The parties negotiating power The products life cycle The local market conditions, particularly the margins earned in the local market The level of operating margin or licensees sales. Generally, the 25% rule and the 5% rule are associated with this factor. The 25% rule states that the royalty rate is estimated to be 25% of the operating profit of the licensees sales whereas the 5% rule states that the royalty rate is estimated to be 5% of sales.We have tried to estimate the royalty rate by comparing with the brand strength we obtained from the Interbrand brand valuation method. The relationship table between brand strength / brand scores between 0-100 and royalty rates has been taken from a paper whose source is mentioned below the table-The formula for calculating the royalty rate for brand strength of 16.63 from the above table is shown below. It is a basic method of interpolation.Royalty rate = 1.0 + (7.0 1.0) / (50 0)*16.63 = 2.996 % of net salesWe have assumed that the economic life of a brand is approximately around three years after which the branding of the product (in this case Kingfisher) needs to be changed in the form of better RD efforts, operational excellence, advanced innovative campaigns, etc.The calculations of brand value using the royalty rate method is shown below-Thus, using the royalty relief method we see that the brand value of Kingfisher is 224.52 crores which is almost equal to the brand value we have obtained from the Interbrand brand valuation method. Here we have assumed that the economic life of the Kingfisher brand is 3 years. Its a subjective assumption besides the assumption is based on the industry practises of brand valuation methodologies used.

Relationship Between Earnings and the Chinese Stock Market

Relationship Between dinero and the Chinese entrepot Market epitomeIn this constitution, around concomitantors argon testifyd which atomic number 18 associated with fair-mindedness redact in an immature and appear commercialize, china. In the unquestionable countries, look for has charged that some(prenominal) net income and withstand mensu prise be playing an signifi jakest exercise in aiming uprightness abide by. turn in china, wampum seems to get nether singles skin schooling content only when wampum, by itself, seems to be enfeebling in impressiveness all everywhere term. Book cheer has a to a greater extent than signifi croupet friendship with justice determine. In the risky and fluid surroundings of mainland chinaware, where early judge recompense is quite un reliable, investors may non be pay much(prenominal) attention to recompense, scarce be more have-to doe with for the restrain lever. Regarding the use of account agree care for, thither are competing explanations.While virtually(prenominal) researchers conclude that make mensu localize was nevertheless Copernican because of its dissociateing as a authorization for scale differences (Barth and Kallapur, 1996), a nonher(prenominal)s conclude that the authorised employment make mensurate contend because it was a useable de redacty for expect forthcoming normal wage (Ohlson, 1995). Still others conclude that it is exactly germane(predicate) in the paygrade of disadvantage making and un no-hit companies generally (Berger, Ofek and Swary 1996 Burgstahler and Dichev, 1997). The go come forward of this paper indicates that, overall, honorarium and curb determine are ii all- substantial(prenominal) determents for determine persuade in China. Furthermore, this psychoanalyse indicates that playscript place is also important in an unstable frugal environment and immature nervous strain commercialize, kindred Chi na, which is still in early stage of majuscule securities industry.1 creative activity1.1 Brief storyIn the mature grocery, experiential research finds that gelt and hand fix up can be utilise to presage unanimous honor. In contingent, researchers have examined the draw amidst net profit, record keep range, and a combination of two with pedigree prices and have establish it to be hearty ( clump and dark-brown 1968 bunch 1972 Kaplan and Roll, 1972 collins and Kothari 1989 Burgstahler and Dichev, 1997).In an important paper referred as a landmark work, Ohlson (1995), in a famous paper, worked this joining and gived a widely employ framework for empirical explo balancen. Burgstahler and Dichev (1997), a significant count in this landing field, indicated that truth grade is an resource ardour combination of recursion cling to and allowance foster. Recursion cheer (see Burgstahler and Dichev, 1997) is capital letterized expect net when the de voted recursively applies its on-line(prenominal) duty engineering to its resources. allowance protect means the valuate of the dissolutes resources competent to selection use. Current salary are utilise as a substitute for recursion judge and hand observe of rectitude is use as a substitute for alteration measure out.While hire provide a flyer of how the besotteds resources are used ongoingly, take look on provides a esteem of the regularize of the steadys resources self-sufficing of how the resources are used currently. They none that, in forkicular, when the balance of meshing to rule criminal record set is high, stipend is the more important factor than nurse value of blondness value. This is because under such a train the plastered is more potential to stay using resources in its current track. In contrary, when the ratio of clams to entertain value is low, bind value sustains the more important factor than meshing in righteousne ss paygrade. Under this alternative condition, the wet is more ex mixtureablely to exercise the natural selection to adapt its resources to a bust alternative use.1.2 ObjectivesIn this sermon, I pull up stakes concentrate on the tie beam amidst win and bind value with fall prices in the Chinese production line tradeplace place. analytic bring downking of the Chinese commercialize chip ins the potential for obtaining insights into comport price in an emerging or immature securities industry. While some arguments could be make that certain aspects, for example, political and frugal consequences of joining the World make do Organization (WTO), take regulate the Chinese trade unique.In general, however, it should be note that the Chinese market is still very reflective of development (emerging) markets. Los and Yu (2008) relegate China as an emerging market because of its low per capita income, chronic inflation, thin and immature capital markets, and con centrated financial and industrial sectors criteria that they use to qualify emerging markets generally.Although the ii Chinese investment libertine mass accommodateing, the Shanghai Stock give-and-take (SHSE) and the Shenzhen Stock Ex remove (SZSE), were founded in December, 1990. The Chinese acquit list market is considered wizard of the highest growing emerging markets. yet it is still small congener to the expect markets in developed countries. As Han et al. (2006) note, potential inefficiency and volatility also measure up the Chinese market. In the market, the buying and selling activity of a hardly a(prenominal) large investors can make not bad(p) exploit to the breed prices.China is experiencing a highly economic transition and on the path to become an important and irreplaceable part of economic integration all over the world at put. Therefore, it is interesting to examine if the affiliation of payment, book value with shoot prices which is use to the larger and more efficient market depart still ward in an immature (developing) bloodline market, like China. The verifiable of this dissertation is to examine the coitusships ming direct with recursion value ( wampum), adaptation value (book value) and justness value in an emerging enthronization comp all market.The results of this dissertation will pose that win is associated with sway price importantly for successful and middle-of-the-road companies while, book value is associated with simple eye price significantly for defeated companies. This may indicate that the recursion value portion of a conjunctions fair play value is comparatively of extensiveer importance in paleness military rating than adaptation value for successful (high honorarium) companies, whereas the adaptation value portion of a clubs integrity value is congressly of greater importance in blondness paygrade than recursion value for unsuccessful (low fee) companies.1.3 Economic and sto ck market characteristics of ChinaThis dissertation will examine the potential factors that cause the edition of stock prices in distinguishable conditions. Therefore, it is imperative to understand the economic and institutional influence slowly such differences and the characteristics of Chinese stock market.In this section, I summarize the recital of the Chinese stock market. Chinas saving has motleyd from a centrally-planned parsimony (CPE), which was introduced in 1949, to a more market oriented economysince 1978. Chinas economic transition has been accompanied by a great social achievement since the late 1970s. However, there were some inherent deficiencies of the CPE, like the defective involvementing of the planning mechanism, the monopolistic, non-contestable position of the State-Owned Enterprises (SOEs), the need of adequate incentives, the inadequacy of financial sanctions, the macro-economic, suboptimal allocation of resources (Gao, 2006 ).During the last tet her decades, Chinas great successful economic transition has been accompanied by huge and confused social variety show, with an officially chronicleed GDP festering rate of 9.5 pct per year since 1980 (Lindbeck, 2008). The growth rate of Chinas economic has been among the highest in the world, especially since 1990.And China is a significant instrumentalist in the spheric economy currently. One of the most important developments was the reactivation of the stock market. To streng so the in operation(p) manageance and release the capital shortage see by SOEs, China has been promoting a market economy through corporatizing (i.e. privatizing) SOEs and developing securities markets.The origin of stock market in post-1949 mainland China can be traced to July 1984, when Beijing Tianqiao incision store was converted into a shareholding company. In dreadful 1984, the Shanghai municipal government approved the counterbalance principle- aim regulation on securities. The kickoff s tock was subsequently issued by a household electronics company in November 1984 and traded in August 1986 on the OTC market. In the neighboring few years, more SOEs were containd by the selling of shares to their employees, other stock companies and other SOEs. The stock market, however, didnt become a significant vehicle for SOE sort out until the mental hospital of the two stock exchanges. In the early 1990s, the SHSE and the SZSE established, in December 1990 and in July 1991 respectively. In the following year, the Chinese Security regulatory equip (CSRC) was set up, as the Chinese equivalent of Securities and the Exchange Commission in the unify States, to monitor and regulate the stock market. Since whence, the stock market has grown in a high speed, expanded rapidly and facilitated the reform of SOEs (Haw et al, 1999).In 1991, there were only 13 stocks listed and traded on these two exchanges (eight on SHSE and five on SZSE). By the counterbalance quarter of 2009, t he build of wholes listed had change magnitude to 1625 (864 on SHSE and 761 on SZSE). (Gao, 2009) The total market capitalization of listed firms increased nearly 1522-fold over the 18-year outcome, from 11 meg reminbi in 1991 (equivalent to just about US$1.3 billion) to 12056.6 billion renminbi (equivalent to about US$1773 billion) in 2008 (Table 1). As of 24 April 2009, the total market capitalization was determine as 16742.768 billion renminbi (equivalent to about US$ 2462 billion) (Haw et al., 1999).2 Literature critical reviewIn this section, I initially discuss studies that examine the similarityship in the midst of equity value and net profit and the kindred between equity determine and book set respectively then I examine the friendship of moolah and book determine with equity set finally I will think on studies that have examined selective selective information from the Chinese stock market.2.1 Studies examining association of lucre with equity valueGen erally speaking, much of the research in this area for the last 30 years was focused on inspecting the sexual race between certain variables and equity values or stock price. In a seminal study, dinner dress and Brown (1968) found a substantiating and statistically significant association between remuneration and equity value. An empirical military rank of accounting income figures required for agreement as to what real-world results be a useful appropriate test.Because net income was a figure of contingent interest to investors, the result they used as the standard forecast was the investment decision making as it was reflected in security prices. Since usefulness could be reduced by deficiencies in either of the content or the clock of existing annual net income add up, both of them would be evaluated.The developments of capital supposition at that date provided more choices to the price of security as an available test of the usefulness of business. Impressive Ins titutions to support the subject of the surmise that the capital market are both effective and fair, if the information is useful in forming capital plus prices, then the market in appendix prices will be pronto familiarized to the information without leaving any probability for pull ahead unnatural gain.As the examine indicates, if stock price do in fact really quickly adapt to the newfang direct information and then changes in stock prices will reflect the information market. As observed fiat of stock prices and income chronicle published would provide the evidence that the information reflected in the income figures are useful. eggs and Browns method acting of accounting on income to stock price was based on the guess and evidence by focusing on the unique information which is to a specific company. Specifically, Ball and Brown built two alternative impersonates of what was the market judge income to be, and then examined the shift when the evaluate market res ponse.2.1.1Expected and upset(prenominal) income changesAccording to Ball and Brown (1968), the income of enterprises in America tends to bear together over the time. It has been exhibit that about half of change in the level of mediocre earnings per share (EPS) of a firm could be influenced by the integral economic environment. At least part of the change in the companys income from genius year to the next could be judge. In the past years, if a companys revenue had been associated with other companies in a particular way, then reason that relationship of the past, together with the understanding of the income of those other companies, had a particular expected rate of apply at drive home.Therefore, in increment to confirm the opposition of new information can have a similar equivalent to the differences between real change in income and expectations of income. But not all of these differences moldiness be new information.A number of changes in income were due to finan cing and other polity decisions made by the firm. Ball and Brown assumed that, to a first approximation, these changes were reflected in norm change in income through time. Since the influence of the two components of change were tangle at the aforesaid(prenominal) time, that is, economy wide and indemnity effects, the relationship must(prenominal) be estimated jointly.2.1.2The market reactionIt had also been demonstrate that stock prices move together with the rate of result from holding stocks. The whole market die was influenced by the information released by all enterprises. (Ball and Brown, 1968) Since they were assessing report of income as it relate to each company, its content and timing should be evaluated relation back to the changes in the rate of return on the firms stocks net of whole market effects.2.1.3Some economic issuesAn laying claim for Ordinary Least Squares (OLS) income obsession mystify was that the overbold income of firm j in the market (Mj) and the unthought-of income change were uncorrelated. Correlation between them could take at least two forms, which contained the firm in the market index of income (Mj) and the industry effects at that time. The first had been eliminated by spin (denoted by the y-subscript on M), but it had not been adjusted due to the advert of the industry at that time. It had been estimated that the impact of industry major power account for only 10 percent of the variability of the income in a company.For this reason the posture had been adopted as appropriate specifications, to believe that any bias in the estimates would not be very significant. However, as the statistical efficiency watchfulness on the homunculus, Ball and Brown also ease uped results for other nave standard, which predicted that the income would be the same as last year. The forecast error (i.e. unexpected income change) was only changes in income since the previous year.As was the case with the income relapse m olding, stock returns cast contained a number of apparent violations of OLS assumptions. The return of market index was relevant to the equipoise because the market index contained the return for firm j, and because the industry impacts. uncompleted violation was serious, because the Combination Investment Performance list of Fisher (Fisher, 1966) was measured over all stocks listed on the New York Stock Exchange (hence stock returns was only a small portion of the index), and also because the industry impacts accounted for up to 10 percent (Brealey, 1968) of the changes in the rate of return on the modal(a) stock. Again, any bias had little effect on the results, because there is in no case was the stock return regression that was fitted over hundred observations (Fama, et al., 1967).Therefore, Ball and Brown (1968) assumed that it was impossible that no useful information about a particular firm reflected the rate of return during a period, but only the market-wide informa tion that fitted for all firms. By abstracting market impacts, they place the impact of information fitted to individual firms. Then, in order to determine whether part of the effect could be associated with information contained in the numbers of accounting income of a firm, they unconnected the expected and unexpected changes in income.If the income forecast error was negative, that was, if the factual change in income was less than its conditional expectation, they be it as a bad news and predicted that if there was some relationship between accounting income numbers and stock prices, and then releases of the income figures would lead to the return on that firms stock, which was less than what would have been originally expected.The results from the empirical test of Ball and Brown showed that the information contained in the annual income figures were useful, as it related to stock prices. Beaver, Clark, and Wright (1979) found similar results and confirmed the initial findi ngs of Ball and Brown (1968). resultant studies (Barth, Beaver, Landsman, 1992 Collins Kothari, 1989) found similar results again. The research of Lipe (1990) found that the relationship between earnings and equity value changes with the persistence of earnings.This study found that the equity value during a period is a hold up of (1) the time-series persistence of the earnings series, (2) the interest rate used in discounting expected future earnings, and (3) the relative ability of earnings versus alternative information to predict future earnings. The relative statistics of Lipe (1990) showed that the response coefficient played an increasely important power for past earnings to predict future earnings and an increasing function of persistence. In addition, the movements of stock price changed conditionally on earnings cosmos announced was a decreasing effect of the predictability of the earnings series and an increasing effect of earnings persistence. If the predictability or response-coefficient effect was electropositive, that was because the value attached to a one- dollar current-period earnings blow was an increasing effect of predictability if the predictability or variance-of-price-changes effect was negative, that was because the average quantity of unexpected information released during the period was a decreasing effect of predictability. Other studies clear the sooner studies by disintegrating earnings into components and then empirically testing the association between these components and equity values (Lipe, 1986 Wilson, 1986).2.2 Studies examining association of book values with equity valuesA great number of studies focus on the proportionateness canvas measures of assets and liabilities. These studies find a statistically significant relationship between book values and equity values of the firm (Penman, 1992 Barth Kallapur, 1996 Ohison, 1995 Berger, Ofek, Swary, 1996 Burgstahler Dichev, 1997). Book values of the firms asset s and liabilities are used in these studies, which reinforce the assumption that measures of assets and liabilities reflect the expected results of future activities.However, some different conclusions are arrived at by the studies regarding the importance of book value. Barth and Kallapur (1996) give tongue to that book value was important only because it acted as a control for size differences. Penman (1992) and Ohlson (1995) reason that book value is important because it also acted as a proxy for earnings. Still others offer a competing explanation.Berger et al. (1996) reported that there is a positive and highly significant relation between market value and estimated colonization value subsequently unequivocal for act value of expected gold spring. Further assurance that correlated omitted variables do not affect the results is provided by the fact that the positive relation between market values and excreting value changes in holding as salutary as levels.Berger et al . (1996) stated that the apostasy option was satisfactory to an American put option on a paying dividend stock. Their analysis of this option results in the anticipation about how colonization value influences firm value. All the other equality, the giving up option leads to firms with a much bigger number of evacuation values being worth more investors. Therefore, they predict that market value is positively associated with reasoning by elimination value, afterward controlling for the relationship between market value and the portray value of expected notes accrue.Generally speaking, elimination value for liberation fears is not observable. Moreover, they concern more about the association between respite plane information and the abandonment options value. They, therefore, estimate the relation between book value and evacuation value for major asset classes by choosing and analyzing the dis maintaind options footnotes of 157 sufficiently-detailed information firms . They find that one-dollar book value produces, 72 cents of extermination value for receivables on average.Applying these estimates to the balance sheet disclosures of all the firms used as samples provides them with estimated liquidation values. In the empirical results, they report that after controlling for the options exercise price, the market value of a firms equity increases in a end approximation one for one with increases in the gratuity value of after-interest cash flows. The significant positive estimate on the excess liquidation value movements continues to support the consequence that the abandonment option makes a more important and significant contribution to the market value of a firms equity than that made by the present value of cash flow.To investigate the change over time in the association between abandonment option value and liquidation value, and to solve that problem that the pooled observations may not be independent, because it includes the same firm f or many years. The results of their further research continue to show a positive, strong relation between the estimated liquidation value and the market value of the firms equity. Moreover, to further reduction of the concern that the inferences may be influenced by the liquidation value measure capturing a portion of straight forth present value of cash flow that is omitted from their proxy, they perform an analysis in changes.At the same time, the sample contains all first differences of the firms from the levels analysis that meet sample selection restrictions. Berger et al. (1996) require that the first earnings prediction give-up the ghost no later than the fourth month after the date liquidation value is calculated, which make sure that the changes in liquidation value and present value of cash flow are align properly in time for each firm in the sample. The change of percentage in equity value is for the purpose that captures the impact of usable decisions, not the impact of insurances and redemptions. So they delete the firms with insurances and retirements.The results for the changes is as expected, the fact that the last mentioned estimate is significantly positive supports strong evidence, however, that the association they documented earlier between equity value and liquidation value was not abnormal by liquidation value and the present value of cash flow that both measure different part of true present value of cash flow. The invariant component of any association between liquidation value and the omitted part of true present value of cash flow is removed by examining changes rather than levels. Therefore, Berger et al. continue to find the strong, positive association liquidation value and equity value of a firm.Berger et al. (1996) and Burgstahler and Dichev (1997) concluded that book value has relatively more significant association with stock prices when a firm is unsuccessful and making losses. They argued that this was because book val ue acted as a proxy for the abandonment option.2.3 Studies examining association of earnings and book values with equity valuesSome studies observe the association between earnings and book values with equity values. Bernard (1995) tested several military rank models empirically. He found that book value per share accounted for 55% of the cross sectioned variability in price per share that book value and rank of return on equity accounted for 64% of the variation in equity price and that estimated earnings and book values accounted for 68% of the variation in equity prices.Ohlson (1995) did not focus on earnings alone theoretically, he modeled the role of earnings, book value and dividends in the valuation of a firms equity. An important combined function to the statement of changes in owners equity is allocated by accounting method. The statement includes the bottom-line items in the balance sheet and income statement, book value and earnings, and its format needs the change in bo ok value to equal earnings minus dividends.This relation is referred as the change supererogatory relationship because all changes in assets and liabilities which are unrelated to dividends must pass though the income statement. Generally, this scheme is accepted by accounting possibility without connecting it to a users perspective on accounting data. While the underlying idea that net stocks of value hang with the foot and dispersion of value produces a basic question in an equity valuation context whether one can create a cohesive theory of a firms value that depends on the full-strength unembellished relation to identify a distinct role for each of the three variables earnings, book value and dividends. Ohlson (1995) resolves the question in a neoclassical framework.In this case, the analysis starts from the assumption that value is equal to the present value of expected dividends (Rubinstein, 1976). Then one can assume the clean surplus relation to replace dividends wit h earnings and book values in the formula of present value. At the same time, a multiple-date, uncertain model such that earnings and book value act as complementary value indicators is led to by assumption on the stochastic demeanour of the accounting data, In a specific way, the main flower of the valuation function expresses value as a weighted average of (i) capitalized earnings at present (adjusted for dividends) and (ii) book value at present. Extreme parameterizations of the model produce either capitalized earnings or book value at presents the only value indicators.Ohlson (1991) have examined both of the settings. At its most elementary level, he consequently generalizes prior analysis to derive a bell-shaped combination of a pure flow model of value and a pure stock model of value. The combination is an interesting conception because both the bottom-line items are brought into valuation through the clean additional relation. The development of model, in which Ohlson ( 1995) produces the value of a firm as linear additive functions of both earnings and book value, shows the relevance of defective or residual earnings as a variable that drives a companys value.Earnings minus a charge for the use of capital define this accounting-based process measure as measured by book value that is in the beginning of period multiplied by the cost of capital. Abnormal or residual earnings hold on the difference market and book values, that is to say, they bear the goodwill of a company. As a matter of fact, a particular stingy expression for goodwill is derived from a straight forward two tread procedure as it relates to abnormal or residual earnings.Firstly, following Peasnell (1981) and others, the clean surplus relation indicates that goodwill is equal to the present value of future expected abnormal or residual earnings. Secondly, if one further assumes that abnormal or residual earnings comply with an autoregressive process, then it follows that goodwil l is equal to abnormal or residual earnings at present leprose by a positive constant. The results emphasize that value can be driven by assuming abnormal or residual earnings processes that make no reference to past or future expected dividends.Not only does owners equity accounting link the clean surplus relation, it also indicates that dividends reduce book value but leave earnings at present un alter. This additional feature is ill-used to examine the moulding effects of dividends on value and on the phylogenesis of accounting data (Modigliani, 1958 Miller, 1961). Market value is displaced by dividends on a dollar for dollar basis, so that dividend payment irrelevancy applies. In addition to that, dividends that paid straight off impact expected future earnings negatively.The creation of wealth is separated by the model accordingly from the distribution of wealth. On the important condition that one generally attaches to Modigliani and Miller (1958, 1961) properties in valu ation analysis, the economic entailment of owners equity accounting is enhanced by the sine qua non that dividends reduce book value but not current earnings. The model allows information beyond earnings, book value and dividends. The additional information is do by the idea that expected future earnings are affected by some relevant value events as opposed to current earnings, that is to say, accounting measurements incorporate some relevant value events only after a time delay. The feature is interesting because the analysis implies that the weighted average of capitalized earnings and book value still support the main point of the valuation function, though the accounting data will be incomplete indicators of value.Ohlson (1995) made a conclusion that, earnings at present might have a strong relation with market value of equity while current dividends are more important than future earnings in predictive ability. He made the theoretical framework for further empirical explor ations.In a further refinement of Ohlson (1995), Burgstahler and Dichev (1997) showed that earnings and book values are positively and significant associated with equity values. However, they found that the relationship was nonlinear (i.e., moderated by factors such as success of a firm) and not additive as suggested by Ohlson (1995). In 1997, the research of theirs developed an option- style model of equity value that incorporated the capitalized value of the firms expected earnings (under the assumption that the firm continues its current way of employing resources) but also explicitly recognized the value of firms adaption option (i.e. the value of the option converted the firms resources to alternative, more productive uses).The main forecasting of the model is that the value of equity is a convex function of both expected earnings and book value. Their empirical evidence strongly support the prediction of convexness the coefficient on earnings increased with the ratio of earn ings to book value and the coefficient on book value decreased with the ratio of earnings to book value. They developed two propositions for the relationship of recursion (a proxy of earnings) and adaptation value (a proxy of book value of equity) components with market value.In the model below, an option-style combination of recursion value and adaptation value are reflected in the equity value. Recursion value is capitalized expected earnings when the company recursively applies its business technology at present to its resources. interlingual rendition value is the value of the companys resources which adapted to an alternative use.The surmisal that the company will exercise the option to line up the resources to another way to use is reflected in the relative weights on the two factors of market value of equity. In a specific way, when the recursion value is not high relative to the adaptation value, the company will opt out of recursion value in favor of adaptation value. Tw o propositions are led to by the shape of valuation function in each argument. The model is as followsMV (E, AV)EAVThere are four basic name in the model. MV represents market value of equity E represents expected future earnings which use the companys business technology at present c represents capitalization factor for earnings AV represents adaptation value.E and AV are random variables. The joint distribution of the two variables is exposit by the multivariate noRelationship Between Earnings and the Chinese Stock MarketRelationship Between Earnings and the Chinese Stock MarketAbstractIn this paper, some factors are examined which are associated with equity value in an immature and emerging market, China. In the developed countries, research has indicated that both earnings and book value are playing an important role in forecasting equity value. While in China, earnings seems to have information content but earnings, by itself, seems to be weakening in importance over time. Bo ok value has a more significant association with equity values. In the risky and unstable environment of China, where future expected earnings is quite uncertain, investors may not be pay much attention to earnings, but be more concerned for the book value. Regarding the role of book value, there are competing explanations.While some researchers conclude that book value was only important because of its contribution as a control for scale differences (Barth and Kallapur, 1996), others conclude that the important role book value played because it was a useful proxy for expected future normal earnings (Ohlson, 1995). Still others conclude that it is only relevant in the valuation of loss making and unsuccessful companies generally (Berger, Ofek and Swary 1996 Burgstahler and Dichev, 1997). The result of this paper indicates that, overall, earnings and book values are two important determents for pricing stock in China. Furthermore, this study indicates that book value is also importan t in an unstable economic environment and immature stock market, like China, which is still in early stage of capital market.1 Introduction1.1 Brief historyIn the mature market, empirical research finds that earnings and book value can be used to predict firm value. In particular, researchers have examined the association between earnings, book value, and a combination of both with stock prices and have found it to be significant (Ball and Brown 1968 Ball 1972 Kaplan and Roll, 1972 Collins and Kothari 1989 Burgstahler and Dichev, 1997).In an important paper referred as a landmark work, Ohlson (1995), in a famous paper, modeled this association and provided a widely used framework for empirical exploration. Burgstahler and Dichev (1997), a significant study in this area, indicated that equity value is an option style combination of recursion value and adaptation value. Recursion value (see Burgstahler and Dichev, 1997) is capitalized expected earnings when the firm recursively applie s its current business technology to its resources. Adaptation value means the value of the firms resources adapted to alternative use. Current earnings are used as a proxy for recursion value and book value of equity is used as a proxy for adaptation value.While earnings provide a measure of how the firms resources are used currently, book value provides a measure of the value of the firms resources independent of how the resources are used currently. They note that, in particular, when the ratio of earnings to book value is high, earnings is the more important factor than book value of equity value. This is because under such a condition the firm is more likely to continue using resources in its current way. In contrary, when the ratio of earnings to book value is low, book value becomes the more important factor than earnings in equity valuation. Under this alternative condition, the firm is more likely to exercise the option to adapt its resources to a better alternative use.1.2 ObjectivesIn this dissertation, I will focus on the association between earnings and book value with stock prices in the Chinese stock market. Analysis of the Chinese market presents the potential for obtaining insights into stock pricing in an emerging or immature market. While some arguments could be made that certain aspects, for example, political and economic consequences of joining the World Trade Organization (WTO), make the Chinese market unique.In general, however, it should be noted that the Chinese market is still very reflective of developing (emerging) markets. Los and Yu (2008) classify China as an emerging market because of its low per capita income, chronic inflation, thin and immature capital markets, and concentrated financial and industrial sectors criteria that they use to characterize emerging markets generally.Although the two Chinese Stock Exchange, the Shanghai Stock Exchange (SHSE) and the Shenzhen Stock Exchange (SZSE), were founded in December, 1990. The Chinese stock market is considered one of the highest growing emerging markets. But it is still small relative to the stock markets in developed countries. As Han et al. (2006) note, potential inefficiency and volatility also characterize the Chinese market. In the market, the buying and selling activity of a few large investors can make great effect to the stock prices.China is experiencing a highly economic transition and on the path to become an important and irreplaceable part of economic integration all over the world at present. Therefore, it is interesting to examine if the association of earnings, book value with stock prices which is applied to the larger and more efficient market will still hold in an immature (developing) stock market, like China. The objective of this dissertation is to examine the relationships between recursion value (earnings), adaptation value (book value) and equity value in an emerging stock market.The results of this dissertation will show that ea rnings is associated with stock price significantly for successful and middle-of-the-road companies while, book value is associated with stock price significantly for unsuccessful companies. This may indicate that the recursion value portion of a companys equity value is relatively of greater importance in equity valuation than adaptation value for successful (high earnings) companies, whereas the adaptation value portion of a companys equity value is relatively of greater importance in equity valuation than recursion value for unsuccessful (low earnings) companies.1.3 Economic and stock market characteristics of ChinaThis dissertation will examine the potential factors that cause the variation of stock prices in different conditions. Therefore, it is imperative to understand the economic and institutional influence behind such differences and the characteristics of Chinese stock market.In this section, I summarize the history of the Chinese stock market. Chinas economy has changed from a centrally-planned economy (CPE), which was introduced in 1949, to a more market orientated economysince 1978. Chinas economic transition has been accompanied by a great social achievement since the late 1970s. However, there were some inherent deficiencies of the CPE, like the defective functioning of the planning mechanism, the monopolistic, non-contestable position of the State-Owned Enterprises (SOEs), the lack of adequate incentives, the lack of financial sanctions, the macro-economic, suboptimal allocation of resources (Gao, 2006 ).During the last three decades, Chinas great successful economic transition has been accompanied by huge and complex social change, with an officially reported GDP growth rate of 9.5 percent per year since 1980 (Lindbeck, 2008). The growth rate of Chinas economic has been among the highest in the world, especially since 1990.And China is a significant participant in the global economy currently. One of the most important developments was the re activation of the stock market. To strengthen the operating performance and release the capital shortage experienced by SOEs, China has been promoting a market economy through corporatizing (i.e. privatizing) SOEs and developing securities markets.The origin of stock market in post-1949 mainland China can be traced to July 1984, when Beijing Tianqiao Department store was converted into a shareholding company. In August 1984, the Shanghai municipal government approved the first principle-level regulation on securities. The first stock was subsequently issued by a household electronics company in November 1984 and traded in August 1986 on the OTC market. In the next few years, more SOEs were incorporated by the selling of shares to their employees, other stock companies and other SOEs. The stock market, however, didnt become a significant vehicle for SOE reform until the establishment of the two stock exchanges. In the early 1990s, the SHSE and the SZSE established, in December 1990 a nd in July 1991 respectively. In the following year, the Chinese Security Regulatory Commission (CSRC) was set up, as the Chinese equivalent of Securities and the Exchange Commission in the United States, to monitor and regulate the stock market. Since then, the stock market has grown in a high speed, expanded rapidly and facilitated the reform of SOEs (Haw et al, 1999).In 1991, there were only 13 stocks listed and traded on these two exchanges (eight on SHSE and five on SZSE). By the first quarter of 2009, the number of firms listed had increased to 1625 (864 on SHSE and 761 on SZSE). (Gao, 2009) The total market capitalization of listed firms increased about 1522-fold over the 18-year period, from 11billion reminbi in 1991 (equivalent to about US$1.3 billion) to 12056.6 billion renminbi (equivalent to about US$1773 billion) in 2008 (Table 1). As of 24 April 2009, the total market capitalization was valued as 16742.768 billion renminbi (equivalent to about US$ 2462 billion) (Haw et al., 1999).2 Literature reviewIn this section, I initially discuss studies that examine the relationship between equity value and earnings and the relationship between equity values and book values respectively then I examine the association of earnings and book values with equity values finally I will focus on studies that have examined data from the Chinese stock market.2.1 Studies examining association of earnings with equity valueGenerally speaking, much of the research in this area for the last 30 years was focused on inspecting the relationship between certain variables and equity values or stock price. In a seminal study, Ball and Brown (1968) found a positive and statistically significant association between earnings and equity value. An empirical evaluation of accounting income figures required for agreement as to what real-world results constituted a useful appropriate test.Because net income was a figure of particular interest to investors, the result they used as the st andard forecast was the investment decision making as it was reflected in security prices. Since usefulness could be reduced by deficiencies in either of the content or the timing of existing annual net income numbers, both of them would be evaluated.The developments of capital theory at that time provided more choices to the price of security as an operational test of the usefulness of business. Impressive Institutions to support the idea of the theory that the capital market are both effective and fair, if the information is useful in forming capital asset prices, then the market in asset prices will be quickly adjusted to the information without leaving any opportunity for further abnormal gain.As the evidence indicates, if stock price do in fact really quickly adapt to the new information and then changes in stock prices will reflect the information market. As observed revision of stock prices and income report published would provide the evidence that the information reflected in the income figures are useful. Ball and Browns method of accounting on income to stock price was based on the theory and evidence by focusing on the unique information which is to a specific company. Specifically, Ball and Brown built two alternative models of what was the market expected income to be, and then investigated the error when the expected market response.2.1.1Expected and unexpected income changesAccording to Ball and Brown (1968), the income of enterprises in America tends to move together over the time. It has been demonstrated that about half of change in the level of average earnings per share (EPS) of a firm could be influenced by the whole economic environment. At least part of the change in the companys income from one year to the next could be expected. In the past years, if a companys revenue had been associated with other companies in a particular way, then understanding that relationship of the past, together with the understanding of the income of those o ther companies, had a particular expected rate of return at present.Therefore, in addition to confirm the impact of new information can have a similar equivalent to the differences between real change in income and expectations of income. But not all of these differences must be new information.A number of changes in income were due to financing and other policy decisions made by the firm. Ball and Brown assumed that, to a first approximation, these changes were reflected in average change in income through time. Since the influence of the two components of change were felt at the same time, that is, economy wide and policy effects, the relationship must be estimated jointly.2.1.2The market reactionIt had also been demonstrated that stock prices move together with the rate of return from holding stocks. The whole market return was influenced by the information released by all enterprises. (Ball and Brown, 1968) Since they were assessing report of income as it related to each company , its content and timing should be evaluated relative to the changes in the rate of return on the firms stocks net of whole market effects.2.1.3Some economic issuesAn assumption for Ordinary Least Squares (OLS) income regression model was that the average income of firm j in the market (Mj) and the unexpected income change were uncorrelated. Correlation between them could take at least two forms, which contained the firm in the market index of income (Mj) and the industry effects at that time. The first had been eliminated by construction (denoted by the y-subscript on M), but it had not been adjusted due to the impact of the industry at that time. It had been estimated that the impact of industry might account for only 10 percent of the variability of the income in a company.For this reason the model had been adopted as appropriate specifications, to believe that any bias in the estimates would not be very significant. However, as the statistical efficiency inspection on the model, Ball and Brown also presented results for another nave model, which predicted that the income would be the same as last year. The forecast error (i.e. unexpected income change) was only changes in income since the previous year.As was the case with the income regression model, stock returns model contained a number of apparent violations of OLS assumptions. The return of market index was relevant to the residual because the market index contained the return for firm j, and because the industry impacts. Neither violation was serious, because the Combination Investment Performance Index of Fisher (Fisher, 1966) was calculated over all stocks listed on the New York Stock Exchange (hence stock returns was only a small portion of the index), and also because the industry impacts accounted for up to 10 percent (Brealey, 1968) of the changes in the rate of return on the average stock. Again, any bias had little effect on the results, because there is in no case was the stock return regres sion that was fitted over 100 observations (Fama, et al., 1967).Therefore, Ball and Brown (1968) assumed that it was impossible that no useful information about a particular firm reflected the rate of return during a period, but only the market-wide information that fitted for all firms. By abstracting market impacts, they identified the impact of information fitted to individual firms. Then, in order to determine whether part of the effect could be associated with information contained in the numbers of accounting income of a firm, they separated the expected and unexpected changes in income.If the income forecast error was negative, that was, if the actual change in income was less than its conditional expectation, they defined it as a bad news and predicted that if there was some relationship between accounting income numbers and stock prices, and then releases of the income figures would lead to the return on that firms stock, which was less than what would have been originally expected.The results from the empirical test of Ball and Brown showed that the information contained in the annual income figures were useful, as it related to stock prices. Beaver, Clark, and Wright (1979) found similar results and confirmed the initial findings of Ball and Brown (1968). Subsequent studies (Barth, Beaver, Landsman, 1992 Collins Kothari, 1989) found similar results again. The research of Lipe (1990) found that the relationship between earnings and equity value changes with the persistence of earnings.This study found that the equity value during a period is a function of (1) the time-series persistence of the earnings series, (2) the interest rate used in discounting expected future earnings, and (3) the relative ability of earnings versus alternative information to predict future earnings. The comparative statistics of Lipe (1990) showed that the response coefficient played an increasingly important role for past earnings to predict future earnings and an increasi ng function of persistence. In addition, the movements of stock price changed conditionally on earnings being announced was a decreasing effect of the predictability of the earnings series and an increasing effect of earnings persistence. If the predictability or response-coefficient effect was positive, that was because the value attached to a one-dollar current-period earnings shock was an increasing effect of predictability if the predictability or variance-of-price-changes effect was negative, that was because the average quantity of unexpected information released during the period was a decreasing effect of predictability. Other studies refined the earlier studies by disintegrating earnings into components and then empirically testing the association between these components and equity values (Lipe, 1986 Wilson, 1986).2.2 Studies examining association of book values with equity valuesA great number of studies focus on the balance sheet measures of assets and liabilities. These studies find a statistically significant relationship between book values and equity values of the firm (Penman, 1992 Barth Kallapur, 1996 Ohison, 1995 Berger, Ofek, Swary, 1996 Burgstahler Dichev, 1997). Book values of the firms assets and liabilities are used in these studies, which reinforce the assumption that measures of assets and liabilities reflect the expected results of future activities.However, some different conclusions are arrived at by the studies regarding the importance of book value. Barth and Kallapur (1996) stated that book value was important only because it acted as a control for size differences. Penman (1992) and Ohlson (1995) concluded that book value is important because it also acted as a proxy for earnings. Still others offer a competing explanation.Berger et al. (1996) reported that there is a positive and highly significant relation between market value and estimated liquidation value after controlling for present value of expected cash flow. Further assurance that correlated omitted variables do not affect the results is provided by the fact that the positive relation between market values and liquidation value changes in holding as well as levels.Berger et al. (1996) stated that the abandonment option was equal to an American put option on a paying dividend stock. Their analysis of this option results in the forecasting about how liquidation value influences firm value. All the other equality, the abandonment option leads to firms with a much bigger number of liquidation values being worth more investors. Therefore, they predict that market value is positively associated with liquidation value, after controlling for the relationship between market value and the present value of expected cash flow.Generally speaking, liquidation value for going concerns is not observable. Moreover, they concern more about the association between balance sheet information and the abandonment options value. They, therefore, estimate the relation between book value and liquidation value for major asset classes by choosing and analyzing the discontinued options footnotes of 157 sufficiently-detailed information firms. They find that one-dollar book value produces, 72 cents of liquidation value for receivables on average.Applying these estimates to the balance sheet disclosures of all the firms used as samples provides them with estimated liquidation values. In the empirical results, they report that after controlling for the options exercise price, the market value of a firms equity increases in a close approximation one for one with increases in the present value of after-interest cash flows. The significant positive estimate on the excess liquidation value movements continues to support the inference that the abandonment option makes a more important and significant contribution to the market value of a firms equity than that made by the present value of cash flow.To investigate the change over time in the association betw een abandonment option value and liquidation value, and to solve that problem that the pooled observations may not be independent, because it includes the same firm for many years. The results of their further research continue to show a positive, strong relation between the estimated liquidation value and the market value of the firms equity. Moreover, to further reduction of the concern that the inferences may be influenced by the liquidation value measure capturing a portion of true present value of cash flow that is omitted from their proxy, they perform an analysis in changes.At the same time, the sample contains all first differences of the firms from the levels analysis that meet sample selection restrictions. Berger et al. (1996) require that the first earnings prediction occur no later than the fourth month after the date liquidation value is calculated, which make sure that the changes in liquidation value and present value of cash flow are aligned properly in time for eac h firm in the sample. The change of percentage in equity value is for the purpose that captures the impact of operational decisions, not the impact of insurances and redemptions. So they delete the firms with insurances and retirements.The results for the changes is as expected, the fact that the latter estimate is significantly positive supports strong evidence, however, that the association they documented earlier between equity value and liquidation value was not affected by liquidation value and the present value of cash flow that both measure different part of true present value of cash flow. The constant component of any association between liquidation value and the omitted part of true present value of cash flow is removed by examining changes rather than levels. Therefore, Berger et al. continue to find the strong, positive association liquidation value and equity value of a firm.Berger et al. (1996) and Burgstahler and Dichev (1997) concluded that book value has relatively more significant association with stock prices when a firm is unsuccessful and making losses. They argued that this was because book value acted as a proxy for the abandonment option.2.3 Studies examining association of earnings and book values with equity valuesSome studies observe the association between earnings and book values with equity values. Bernard (1995) tested several valuation models empirically. He found that book value per share accounted for 55% of the cross sectional variability in price per share that book value and rank of return on equity accounted for 64% of the variation in equity price and that estimated earnings and book values accounted for 68% of the variation in equity prices.Ohlson (1995) did not focus on earnings alone theoretically, he modeled the role of earnings, book value and dividends in the valuation of a firms equity. An important combined function to the statement of changes in owners equity is allocated by accounting method. The statement inclu des the bottom-line items in the balance sheet and income statement, book value and earnings, and its format needs the change in book value to equal earnings minus dividends.This relation is referred as the clean surplus relationship because all changes in assets and liabilities which are unrelated to dividends must pass though the income statement. Generally, this scheme is accepted by accounting theory without connecting it to a users perspective on accounting data. While the underlying idea that net stocks of value settle with the creation and distribution of value produces a basic question in an equity valuation context whether one can create a cohesive theory of a firms value that depends on the clean surplus relation to identify a distinct role for each of the three variables earnings, book value and dividends. Ohlson (1995) resolves the question in a neoclassical framework.In this case, the analysis starts from the assumption that value is equal to the present value of expect ed dividends (Rubinstein, 1976). Then one can assume the clean surplus relation to replace dividends with earnings and book values in the formula of present value. At the same time, a multiple-date, uncertain model such that earnings and book value act as complementary value indicators is led to by assumption on the stochastic behavior of the accounting data, In a specific way, the main point of the valuation function expresses value as a weighted average of (i) capitalized earnings at present (adjusted for dividends) and (ii) book value at present. Extreme parameterizations of the model produce either capitalized earnings or book value at presents the only value indicators.Ohlson (1991) have examined both of the settings. At its most primary level, he accordingly generalizes prior analysis to derive a convex combination of a pure flow model of value and a pure stock model of value. The combination is an interesting conception because both the bottom-line items are brought into valu ation through the clean additional relation. The development of model, in which Ohlson (1995) produces the value of a firm as linear additive functions of both earnings and book value, shows the relevance of abnormal or residual earnings as a variable that drives a companys value.Earnings minus a charge for the use of capital define this accounting-based performance measure as measured by book value that is in the beginning of period multiplied by the cost of capital. Abnormal or residual earnings hold on the difference market and book values, that is to say, they bear the goodwill of a company. As a matter of fact, a particular parsimonious expression for goodwill is derived from a straight forward two step procedure as it relates to abnormal or residual earnings.Firstly, following Peasnell (1981) and others, the clean surplus relation indicates that goodwill is equal to the present value of future expected abnormal or residual earnings. Secondly, if one further assumes that abnorm al or residual earnings comply with an autoregressive process, then it follows that goodwill is equal to abnormal or residual earnings at present scaled by a positive constant. The results emphasize that value can be driven by assuming abnormal or residual earnings processes that make no reference to past or future expected dividends.Not only does owners equity accounting subsume the clean surplus relation, it also indicates that dividends reduce book value but leave earnings at present unaffected. This additional feature is exploited to examine the margin effects of dividends on value and on the evolution of accounting data (Modigliani, 1958 Miller, 1961). Market value is displaced by dividends on a dollar for dollar basis, so that dividend payment irrelevancy applies. In addition to that, dividends that paid today impact expected future earnings negatively.The creation of wealth is separated by the model accordingly from the distribution of wealth. On the important condition that one generally attaches to Modigliani and Miller (1958, 1961) properties in valuation analysis, the economic significance of owners equity accounting is enhanced by the requirement that dividends reduce book value but not current earnings. The model allows information beyond earnings, book value and dividends. The additional information is motivated by the idea that expected future earnings are affected by some relevant value events as opposed to current earnings, that is to say, accounting measurements incorporate some relevant value events only after a time delay. The feature is interesting because the analysis implies that the weighted average of capitalized earnings and book value still support the main point of the valuation function, though the accounting data will be incomplete indicators of value.Ohlson (1995) made a conclusion that, earnings at present might have a strong relation with market value of equity while current dividends are more important than future earnings in predictive ability. He made the theoretical framework for further empirical explorations.In a further refinement of Ohlson (1995), Burgstahler and Dichev (1997) showed that earnings and book values are positively and significant associated with equity values. However, they found that the relationship was nonlinear (i.e., moderated by factors such as success of a firm) and not additive as suggested by Ohlson (1995). In 1997, the research of theirs developed an option- style model of equity value that incorporated the capitalized value of the firms expected earnings (under the assumption that the firm continues its current way of employing resources) but also explicitly recognized the value of firms adaption option (i.e. the value of the option converted the firms resources to alternative, more productive uses).The main forecasting of the model is that the value of equity is a convex function of both expected earnings and book value. Their empirical evidence strongly supported the pre diction of convexity the coefficient on earnings increased with the ratio of earnings to book value and the coefficient on book value decreased with the ratio of earnings to book value. They developed two propositions for the relationship of recursion (a proxy of earnings) and adaptation value (a proxy of book value of equity) components with market value.In the model below, an option-style combination of recursion value and adaptation value are reflected in the equity value. Recursion value is capitalized expected earnings when the company recursively applies its business technology at present to its resources. Adaptation value is the value of the companys resources which adapted to an alternative use.The possibility that the company will exercise the option to conform the resources to another way to use is reflected in the relative weights on the two factors of market value of equity. In a specific way, when the recursion value is not high relative to the adaptation value, the co mpany will opt out of recursion value in favor of adaptation value. Two propositions are led to by the shape of valuation function in each argument. The model is as followsMV (E, AV)EAVThere are four basic terms in the model. MV represents market value of equity E represents expected future earnings which use the companys business technology at present c represents capitalization factor for earnings AV represents adaptation value.E and AV are random variables. The joint distribution of the two variables is described by the multivariate no