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The Ohlson Model of Evaluation of Companies:Tutorial for Use

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  • César Medeiros Cupertino

    (University of Santa Catarina)

  • Paulo Roberto Barbosa Lustosa

    (University of Brasilia)

Abstract

The article analyzes the structuring and applicability of the Ohlson Model (OM). The methodology used considered: (i) exploratory research as to the objectives of the study; (ii) bibliographical research as to the procedures applied; and (iii) qualitative research as to the addressing of the problem. The review of the literature covered both the origin (discount of dividends, evaluation by the residual profit etc) and the underlying theory of the model. In relation to the internal consistency of the OM, the structuring of the linear informational dynamics was discussed (DIL) and the formula of evaluation as well as the establishing of the entries demanded (parameters and variables). An example was also developed that illustrates the interaction between the coefficients, variables and parameters of the Ohlson modeling. The example permitted the exploration of fundamental concepts and premises for the operating of the Ohlson model, underlying the equations of the DIL (self-regressive models, parameters of persistence etc), to the behavior of the profits (persistence and ability to forecast), to the scenario of evaluation and to some aspects of the accounts model (role of the net worth etc). The study concluded that: (1) there is no consensus in the academic literature about the appropriate method of measuring the parameters of persistence; (2) there are propositions for perfecting the original conception of the OM by means of extensions to the model; (3) the Ohlson model propitiated a series of contributions in the academic literature about capital markets.

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File URL: http://128.118.178.162/eps/fin/papers/0508/0508002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0508002.

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Length: 16 pages
Date of creation: 01 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0508002

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Web page: http://128.118.178.162

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Keywords: evaluation of companies; Ohlson Model.;

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  1. Dechow, Patricia M. & Hutton, Amy P. & Sloan, Richard G., 1999. "An empirical assessment of the residual income valuation model1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 1-34, January.
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