Log-Linear Stock Valuation Based on Accounting Information

Abstract

In this paper we provide an economic and econometric justification for using a log-linear form to estimate stock value based on accounting information. A log-linear form stands in contrast to the more traditional linear form. We state conditions under which log linear regression provides minimum variance unbiased estimates of log value as well as the appropriate transformation that yields the minimum variance unbiased estimate of value. Specification tests are suggested to infer conformity of the data to model assumptions and these are applied to a recent sample of public companies.