This paper investigates three potential explanations for the puzzlingly weak value relevance of oil and gas asset present values documented in prior research: measurement error, model misspecification, and time‐period idiosyncrasy. I operationally define the magnitude of measurement error as the measurement error variance, estimated using an errors‐in‐variables two‐stage regression model similar to that used by Barth (1991) and Choi et al. (1997). I find that (1) measurement error in the present value measure of oil and gas assets is on average less than the measurement error in the historical cost asset measure; (2) oil and gas assets measured at present value explain significantly more across‐firm and across‐time variation in stock prices than do oil and gas assets measured at historical cost; and (3) model misspecification partially accounts for the puzzlingly weak reported value relevance of the present value measure in prior research.
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1 January 2002
Research Article|
January 01 2002
Revisiting the Reportedly Weak Value Relevance of Oil and Gas Asset Present Values: The Roles of Measurement Error, Model Misspecification, and Time‐Period Idiosyncrasy
Jeff P. Boone
Jeff P. Boone
Mississippi State University.
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2002
The Accounting Review (2002) 77 (1): 73–106.
Citation
Jeff P. Boone; Revisiting the Reportedly Weak Value Relevance of Oil and Gas Asset Present Values: The Roles of Measurement Error, Model Misspecification, and Time‐Period Idiosyncrasy. The Accounting Review 1 January 2002; 77 (1): 73–106. https://doi.org/10.2308/accr.2002.77.1.73
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