An empirical assessment of the residual income valuation model |
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| Institution: | 1. School of Business Administration, University of Michigan, 701 Tappan Street, Ann Arbor, MI 48109-1234, USA;2. Graduate School of Business Administration, Harvard University, Boston, MA 02163, USA;1. International Hellenic University, Greece;2. International Hellenic University, Greece;3. Aston Business School, UK;4. Athens University of Economics and Business, Greece;5. Dominion University College, Ghana;1. University of Arizona, Arizona, USA;2. Korea University Business School, Republic of Korea;3. National University of Singapore, Singapore;4. The Chinese University of Hong Kong, Hong Kong;1. Aston Business School, Aston University, Birmingham, England, B4 7ET, UK;2. Department of Economics, Management and Institutions, University of Naples “Federico II”, Monte S. Angelo University Campus, via Cinthia, 80126, Naples, Italy;3. Bangor Business School, UK;4. IRES, Universite Catholique de Louvain, Belgium;1. School of Business, Economics, and Accounting of the University of Sao Paulo, Brazil;2. FIPECAFI, Business School, Brazil |
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| 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. |
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