Abstract

This study is to test Feltham-Ohlson´s market valuation model(1995) by adding corporate tax. Under this tax-adjusted framework, the information from a firm´s operating activities is not enough to measure its market value because that financial activities also affect its market value. The result of this study shows that abnormal financial earnings are not equal to zero, due to the tax deduction on interest expenses. In particular, the abnormal financial earnings are found to have significant positive effects on firms market value.

Keywords

• Felthem-Ohlson model
• firm market value
• abnormal financial earnings
• abnormal operating earnings

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