6. Conclusion
The empirical analysis performed in this study suggests that on average, net financial liabilities are recorded at values that are close to their fair values. This finding is in accordance with Penman’s (2013, p. 441) contention that “. . .book value is usually a reasonable approximation to market value”. Thus, there are no residual earnings associated with net financial liabilities. The ‘true’ values of these assets and liabilities can be found on the balance sheet, and net financial expenses do not need to be incorporated into the valuation models. Therefore, the study indicates that the residual operating income model can approximate the residual earnings model. However, it should be noted that this conclusion does not necessarily hold for companies with relatively high quantities of financial items that are measured at historical cost. Moreover, this conclusion may also be invalid in unstable financial markets that feature rapidly changing interest rates. Thus, the conjecture that for certain firms and specific economic states, the residual operating income model is a poor alternative and the ‘full’ residual earnings model must be used cannot be discounted.
