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

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