Positive (Zero) NPV Projects and the Behavior of Residual Earnings

14 Pages Posted: 30 Aug 2000

See all articles by James A. Ohlson

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: June 2000

Abstract

This paper analyzes the time-series behavior of residual earnings as it relates to the existence of positive NPV opportunities (or "rents"). The issue is of interest because recent papers (Lo and Lys [1999] and Holthausen and Watts [2000]) have commented on it in the context of the Ohlson [1995] model. The analysis shows that the Ohlson [1995] model rules out neither zero nor positive NPV opportunities, contrary to frequently made claims.

JEL Classification: M41, G12

Suggested Citation

Ohlson, James A., Positive (Zero) NPV Projects and the Behavior of Residual Earnings (June 2000). Available at SSRN: https://ssrn.com/abstract=232741 or http://dx.doi.org/10.2139/ssrn.232741

James A. Ohlson (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

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