The Ohlson Model: Contribution to Valuation Theory, Limitations, and Empirical Applications

48 Pages Posted: 16 Mar 2000

See all articles by Kin Lo

Kin Lo

University of British Columbia (UBC) - Sauder School of Business

Thomas Z. Lys

Northwestern University - Kellogg School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: February 2000

Abstract

The work of Ohlson (1995) and Feltham and Ohlson (1995) had a profound impact on accounting research in the 1990's. In this paper, we first discuss this valuation framework, identify its key features, and put it in the context of prior valuation models. We then review the numerous empirical studies that are based on these models. We find that most of these studies apply a residual income valuation model, without the information dynamics that are the key feature of the Feltham and Ohlson framework. We find that few studies have adequately evaluated the empirical validity of this framework. Moreover, the limited evidence on the validity of this valuation approach is mixed. We conclude that there are many opportunities to refine the theoretical framework and to test its empirical validity. Consequently, the praise many empiricists have given the models is premature.

JEL Classification: C52, G12, M41

Suggested Citation

Lo, Kin and Lys, Thomas Z., The Ohlson Model: Contribution to Valuation Theory, Limitations, and Empirical Applications (February 2000). Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=210948 or http://dx.doi.org/10.2139/ssrn.210948

Kin Lo (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

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Thomas Z. Lys

Northwestern University - Kellogg School of Management ( email )

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