An empirical assessment of the residual income valuation model 1 This paper has benefited from the comments of seminar participants at the Australian Graduate School of Management, the University of Chicago, the University of Rochester's Journal of Accounting and Economics Conference and the University of Texas at Austin. We are grateful for the comments of Andrew Alford, Brian Bushee, Ilia Dichev, John Hand, Trevor Harris, Bob Kaplan, S.P. Kothari (the editor), James Myers and Scott Richardson. We are particularly grateful for the detailed comments and suggestions of Bill Beaver (the referee and discussant) and Jim Ohlson (see Ohlson, 1998). We thank I/B/E/S for the use of analyst forecast data. All views and errors are our own. 1

An empirical assessment of the residual income valuation model 1 This paper has benefited from... This paper provides an empirical assessment of the residual income valuation model proposed in Ohlson (Ohlson, J.A., 1995. Earnings, book values and dividends in security valuation. Contemporary Accounting Research 11, 661–687). We point out that existing empirical research relying on Ohlson's model is similar to past research relying explicitly on the dividend-discounting model. We establish that the key original empirical implications of Ohlson's model stem from the information dynamics that link current information to future residual income. Our empirical results generally support Ohlson's information dynamics. However, we find that our empirical implementation of Ohlson's model provides only minor improvements over existing attempts to implement the dividend-discounting model by capitalizing short-term earnings' forecasts in perpetuity. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

An empirical assessment of the residual income valuation model 1 This paper has benefited from the comments of seminar participants at the Australian Graduate School of Management, the University of Chicago, the University of Rochester's Journal of Accounting and Economics Conference and the University of Texas at Austin. We are grateful for the comments of Andrew Alford, Brian Bushee, Ilia Dichev, John Hand, Trevor Harris, Bob Kaplan, S.P. Kothari (the editor), James Myers and Scott Richardson. We are particularly grateful for the detailed comments and suggestions of Bill Beaver (the referee and discussant) and Jim Ohlson (see Ohlson, 1998). We thank I/B/E/S for the use of analyst forecast data. All views and errors are our own. 1

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Publisher
Elsevier
Copyright
Copyright © 1999 Elsevier Ltd
ISSN
0165-4101
D.O.I.
10.1016/S0165-4101(98)00049-4
Publisher site
See Article on Publisher Site

Abstract

This paper provides an empirical assessment of the residual income valuation model proposed in Ohlson (Ohlson, J.A., 1995. Earnings, book values and dividends in security valuation. Contemporary Accounting Research 11, 661–687). We point out that existing empirical research relying on Ohlson's model is similar to past research relying explicitly on the dividend-discounting model. We establish that the key original empirical implications of Ohlson's model stem from the information dynamics that link current information to future residual income. Our empirical results generally support Ohlson's information dynamics. However, we find that our empirical implementation of Ohlson's model provides only minor improvements over existing attempts to implement the dividend-discounting model by capitalizing short-term earnings' forecasts in perpetuity.

Journal

Journal of Accounting and EconomicsElsevier

Published: Jan 1, 1999

References

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