Desarrollo del Proyecto “El secreto de los juegos”

This section provides a general discussion of the strengths and weaknesses of the Ohlson (1995) model that have been frequently highlighted in the literature. One of the key features of the model that makes it attractive to empirical research is the

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ability to predict and explain stock prices better than other models based on discounting short-term forecasts of dividends and cash flows (Bernard, 1995; Penman and Sougiannis, 1997).

Traditionally, the relationship between financial statement data and firm value is developed based on a three-step process (Beaver, 1989). First, the current financial statement data and firm value must be linked to the future financial statement data. Second, the relationship between the future financial statement data and future dividends must be specified and, third, based on the dividend-discount model, future dividends are linked to current value. Based on the dividend-discount model as the starting point, several studies have attempted to explain the relationship between prices and earnings or future earnings (Fama and Miller, 1972; Beaver, Lambert and Morse, 1980; Kormendi and Lipe, 1987; Collins and Kothari, 1989; King and Langli, 1998). Nonetheless, an important limitation in these studies is that the relationship between either earnings and dividends or earnings and cash flows has been specified in an ad hoc fashion (Bernard, 1995; Dechow et al., 1999).

The Ohlson (1995) model, on the other hand, requires no assumptions on how earnings relate to either dividends or cash flows besides the CSR assumption. This suggests that the three-step process in Beaver (1989) can be simplified into (1) the link between current information and forecasts of future financial statement data and (2) the link between those forecasts and current value. Hence, it provides a useful alternative to the traditional view in valuation-based accounting research by linking future financial statement data directly to firm value, without explicit forecasts of future dividends (Bernard, 1995; Barth, 2000) or additional assumptions about the computation of terminal value in the valuation model (Dechow et al., 1999). Further, it does not depend on the concept of permanent earnings or assets and liabilities since the model is expressed in terms of accounting earnings and equity book value. Thus, empirical implementation of the model does not require a link to be specified

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between accounting amounts and economic constructs such as permanent earnings (Bernard, 1995; Barth et al., 2001).

Nonetheless, similar to other valuation models, it is not without criticisms. For example, Holthausen and Watts (2001) criticise the model for not incorporating the possibility of economic rents. However, it is argued that a key feature of the model is that economic rents are captured by the persistence parameter of abnormal earnings and by other information in the linear information dynamics assumption (Barth et al., 2001). Barth et al. (2001) further highlight that in addition to the abnormal earnings and other information parameters, economic rents are also attributable to intangible assets. Therefore, economic rents can also be incorporated in the model by including intangible assets that capture the present value of the future cash flows attributable to those rents as a component of equity book value.

In addition to that, there have been some concerns regarding the violation of CSR in the application of this model (Lo and Lys, 2000; Holthausen and Watts, 2001). In practice, the restricted CSR cannot be applied perfectly because it does not precisely conform to current GAAP (Holthausen and Watts, 2001). For example, subsequent revaluations of property, plant and equipment (see AASB 16, para. 31) is allowed in Australia, which means that the revaluations of the book value of these assets should explain more of the change in firm market values, not income or earnings. Another example of accounting treatment that violates the assumption of CSR is the U.S. GAAP treatment of foreign currency translations (Lo and Lys, 2000). Since items other than income and transactions with shareholders (such as investments and dividends) affect the change in the book value of equity, this reflects the existence of dirty surplus.

However, some authors argue that the restricted CSR assumption is a relatively minor issue when the empirical power of the model is considered (Bernard, 1995; Lundholm, 1995; King and Langli, 1998; Lo and Lys, 2000). For example, Bernard

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(1995) maintains that even if the firm’s current book value contains dirty surplus items, the relationship in the models will hold as long as expected changes in book value satisfy the CSR. The violation of the CSR assumption, however, is an inherent limitation in empirically testing the RIV model. It is emphasised that rather than focusing solely on the RIV model, the Ohlson’s (1995) contribution to the valuation theory comes from the modelling of the information dynamics that provides additional structure in linking the dividend-discount model to observable accounting variables (Bernard, 1995; Ohlson, 2001; Hand, 2005).

The attractiveness of the Ohlson (1995) model to empiricists is that it provides a testable pricing equation that identifies the roles of accounting and non-accounting information and only three accounting constructs are required to summarise the accounting components (Lo and Lys, 2000). However, this also leads to other concerns in the implementation of the model in that there is no clear guidance on how to operationalise these constructs. For example, there have been claims that the interpretation of abnormal earnings is clouded (Kothari, 2001; Dahmash et al., 2009) as well as arguments on whether or not to include ‘other information’ (v) in the model (Hand, 2001; McCrae and Nilsson, 2001; Ohlson, 2001; Callen and Segal, 2005). A more detailed discussion on these issues is provided in Section 6.4.

Notwithstanding the criticisms, the model has generated substantial interest among accounting academics and is continually being expanded (for example, Feltham and Ohlson, 1995, 1996; Ohlson, 2001) and tested (Frankel and Lee, 1998; Hand and Landsman, 1998; Dechow et al., 1999; Myers, 1999). This active stream of research provides evidence on the validity of the model’s assumptions and the insights one can obtain from using the model (Barth, 2000). Additionally, most empirical applications of the Ohlson (1995) model in the literature have not been directly concerned with testing the model per se (Stober, 1999). Instead, most have been motivated by policy-relevant research questions that involve amounts that are recognised or disclosed in firms’ financial statements.

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In general, the Ohlson (1995) model can be viewed as representing a rigorous valuation methodology with strong theoretical and empirical implications suitable to the analysis of firm value in place of several ad hoc models (Dechow et al., 1999; Lo and Lys, 2000; Beaver, 2002; Dahmash et al., 2009). Because the model has been developed in the context of perfect capital markets, it is not meant to be entirely descriptive of the real world (Lo and Lys, 2000).