Abstract

Two models derived from the dividend discount model attracted the attention of researchers: the residual income model (RIM) and the Ohlson model. These models are said to be dualistic since they combine both aspects of the economic and accounting vision. We propose, in our study, to test the performance of the dualistic evaluation model and to show the importance of accounting information. To do this, we will calculate the value of a listed company according to the actuarial valuation model, namely: the available cash flow discounting model (DCF) and the Ohlson model as a dualistic model. Then, we will determine, based on the expectation and the variance of the signed prediction error (SPE), the model that comes closest to the market price in the case of a Tunisian listed company. The results found in the Tunisian context show the superiority of the Ohlson model in the prediction of stock market prices. This model underlies the traditional belief that the company value is compounded of two main parts: the net value of the investment made in it (book value) and the present value of the period benefits (earnings) that together bring the “clean surplus” concept of the shareholders’ equity value. Specifically, Ohlson (1995) motivates the adoption of the historical price model in value relevance studies, which expresses value as a function of earnings and book values

Highlights

  • The evaluation of assets in general and businesses, in particular, is an extremely important task for making financial decisions

  • Determining the value of the company in the financial market is of paramount importance to investors since it is according to the value of the perception of the company that depends on their investment decisions

  • In order to achieve our objective and verify our hypothesis, which consists in comparing the performance of the discounted cash flow (DCF) and the Ohlson model, we will adopt the same methodology as Penman and Sougiannis (1998), Francis (2000), Tham (2001), and Courteau et al (2000), which consists in calculating the intrinsic value of the share successively according to the available cash flow discounting model, and the Ohlson model (1995) for our sample, and throughout the study period using the flowing equations

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Summary

Introduction

The evaluation of assets in general and businesses, in particular, is an extremely important task for making financial decisions. Determining the value of the company in the financial market is of paramount importance to investors since it is according to the value of the perception of the company that depends on their investment decisions. This need to know the value of the company on the financial market has given birth to a practice called “fundamental analysis”. Analysts release “fundamental” indicators following the analysis of the financial statements. These indicators make it possible to estimate future results, cash flows, dividends, and the company’s ability to generate surplus results

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