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On Transitory Earnings

Author

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  • James A. Ohlson

    (New York University)

Abstract

The paper develops a concept of transitory earnings and contrasts this source of earnings to “core” (or recurring) earnings. It is shown that any two of the following three attributes of transitory earnings imply the third: (i) forecasting irrelevance with respect to next-period aggregate earnings, (ii) value irrelevance, and (iii) unpredictability. The paper makes the case that the current “dirty surplus” items make sense, especially if one expands the valuation perspective to also allow for agency considerations.

Suggested Citation

  • James A. Ohlson, 1999. "On Transitory Earnings," Review of Accounting Studies, Springer, vol. 4(3), pages 145-162, December.
    • Handle: RePEc:spr:reaccs:v:4:y:1999:i:3:d:10.1023_a:1009653114699
    DOI: 10.1023/A:1009653114699
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    References listed on IDEAS

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    1. Andrew W. Stark, 1997. "Linear Information Dynamics, Dividend Irrelevance, Corporate Valuation and the Clean Surplus Relationship," Accounting and Business Research, Taylor & Francis Journals, vol. 27(3), pages 219-228, February.
    2. Ohlson, JA & Zhang, XJ, 1998. "Accrual accounting and equity valuation," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 36, pages 85-111.
    3. James A. Ohlson, 1999. "Earnings, Book Values, and Dividends in a Stewardship Setting with Moral Hazard," Contemporary Accounting Research, John Wiley & Sons, vol. 16(3), pages 525-540, September.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Dennis Chambers & Thomas J. Linsmeier & Catherine Shakespeare & Theodore Sougiannis, 2007. "An evaluation of SFAS No. 130 comprehensive income disclosures," Review of Accounting Studies, Springer, vol. 12(4), pages 557-593, December.
    2. Colin D. B. Clubb, 2013. "Information dynamics, dividend displacement, conservatism, and earnings measurement: a development of the Ohlson (1995) valuation framework," Review of Accounting Studies, Springer, vol. 18(2), pages 360-385, June.
    3. Wayne R. Landsman & Ken V. Peasnell & Peter F. Pope & Shu Yeh, 2006. "Which approach to accounting for employee stock options best reflects market pricing?," Review of Accounting Studies, Springer, vol. 11(2), pages 203-245, September.
    4. Mary E. Barth & Ian D. Gow & Daniel J. Taylor, 2012. "Why do pro forma and Street earnings not reflect changes in GAAP? Evidence from SFAS 123R," Review of Accounting Studies, Springer, vol. 17(3), pages 526-562, September.
    5. Stephen Makar & Li Wang & Pervaiz Alam, 2013. "The mixed attribute model in SFAS 133 cash flow hedge accounting: implications for market pricing," Review of Accounting Studies, Springer, vol. 18(1), pages 66-94, March.

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