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Cointegration Analysis among the Variables of the Ohlson Model for Brazilian Companies

Author

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  • Julio Pereira de Araujo
  • Marcos Roberto Gois de Oliveira Macedo

Abstract

We examine whether there is a long-term equilibrium relation between the companies market value and the variables accounting book value and abnormal earnings based on the Ohlson model (1995) using a cointegration approach. Our panel cointegration analysis indicates that the variables cointegrate when using the whole sample, the most liquid companies group and for all sectors in at least one of the tests performed with exception of the Telecommunications sector, which presented no cointegration in both tests. The time series cointegration results have shown that, except for one company, for all the remaining the variables cointegrated. Therefore, the Ohlson Model (1995) is relevant for the evaluation of Brazilian listed companies in a long-term equilibrium. In addition, we provide evidence that abnormal earnings have limited explanatory power compared to book value.

Suggested Citation

  • Julio Pereira de Araujo & Marcos Roberto Gois de Oliveira Macedo, 2018. "Cointegration Analysis among the Variables of the Ohlson Model for Brazilian Companies," Applied Finance and Accounting, Redfame publishing, vol. 4(1), pages 122-145, February.
  • Handle: RePEc:rfa:afajnl:v:4:y:2018:i:1:p:122-145
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    2. Kaddour Hadri, 2000. "Testing for stationarity in heterogeneous panel data," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 148-161.
    3. Varun Dawar, 2014. "Earnings persistence and stock prices: empirical evidence from an emerging market," Journal of Financial Reporting and Accounting, Emerald Group Publishing, vol. 12(2), pages 117-134, September.
    4. 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.
    5. Marcos Rocha & Fernando Barbi, 2011. "Determinantes doDesalinhamento Cambial: Uma análise comcointegração em painel," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 112, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Gulhan SUADIYE, 2012. "Value Relevance of Book Value & Earnings Under the Local GAAP and IFRS: Evidence from Turkey," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 12(3), pages 301-310.
    7. Cardoso, Leonardo Chaves Borges & Bittencourt, Maurício Vaz Lobo, 2013. "Mensuração das Elasticidades-preço da Demanda, Cruzada e Renda no Mercado de Etanol Brasileiro: um estudo usando painéis cointegrados," Brazilian Journal of Rural Economy and Sociology (Revista de Economia e Sociologia Rural-RESR), Sociedade Brasileira de Economia e Sociologia Rural, vol. 51(4), pages 1-20, December.
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    More about this item

    Keywords

    Ohlson model; panel cointegration; time series cointegration;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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