average) of the hypothesized high incremental explanatory power. Residual earnings
have little explanatory power for Korea. Since prior studies have examined EPS rather
than REPS, these results are not strictly comparable. We also ran the regressions using
EPS and find marginally lower incremental explanatory power for EPS than for REPS.
However, the incremental power of BVPS was lower as well. Our results reflect the
difficulty in making predictions about the explanatory power of residual earnings
across countries.
Explanatory Power of BVPS and REPS Over Time
Following Collins et al. (1997) and King and Langli (1998), we examine changes
across time in the explanatory power of book value and residual earnings. The incremental
explanatory power of BVPS and REPS differ greatly over time and across countries. The