Positive (Zero) NPV Projects and the Behavior of Residual Earnings
14 Pages Posted: 30 Aug 2000
Date Written: June 2000
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  and Holthausen and Watts ) have commented on it in the context of the Ohlson  model. The analysis shows that the Ohlson  model rules out neither zero nor positive NPV opportunities, contrary to frequently made claims.
JEL Classification: M41, G12
Suggested Citation: Suggested Citation