Macroeconomic Factors as Determinants of Company Value in the Context of the Ohlson Residual Income Valuation Model; Greek Findings

Abstract

Over the past two decades the Ohlson Residual Income Model for equity valuation has drawn much attention concerning its advantages when compared to traditional models (DDM, FCFM). This paper attempts to empirically investigate the validity of the Ohlson Residual Income model using data from the Greek economy over the period 1969-2001. By using multiple regression analysis and by incorporating macroeconomic factors as explanatory variables, we investigate the link of accounting and macroeconomic factors in the market valuation of major Greek companies listed in the Athens Stock exchange. We find that the performance of the Ohlson Residual Income Model is quite satisfactory and the use of factors such as commodity prices, discount rates, and market level in some cases add to the explanatory power of the examined model. Our findings are important for both economists and fund managers, because they show that a relation between accounting and macroeconomic data is valid in the Greek market and economy, alongside more developed markets.

Keywords: Asset Pricing, Contingent Pricing, Real Options, Residual income, Capital Budgeting, Value Theory, Market Efficiency, Financial Markets and the Macroeconomy, Profit signaling, Capital Markets

JEL Classification: C61, D46, D92, E44, G10, G12, G13, G14, G31