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The Ohlson model, contribution to valuation theory, limitations, and empirical applications, Journal of Accounting, Auditing and Finance

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.

Type

Article

Author(s)

Kin Lo, Thomas Lys

Date Published

2000

Citations

Lo, Kin, and Thomas Lys. 2000. The Ohlson model, contribution to valuation theory, limitations, and empirical applications. Journal of Accounting, Auditing and Finance. 15(3): 337-367.

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