THE VALUE RELEVANCE OF EARNING MEASUREMENT USING OHLSON MODEL: A META-ANALYSIS

Hari Karyadi,Ghozali Maski,Bambang Subroto,Auliafuad Rahman

doi:10.21776/ub.ijabs.2018.26.2.3

Abstract

The researchers of accounting information value relevance using Ohlson model had operationalized several earnings measurement proxies. The results of the studies indicated that the level of value relevance and significance influence of each proxy varied. This research aimed to combine this diversity and reveal which earnings measurement proxy has significant value relevance. Meta-analysis of 97 published studies using Ohlson model confirmed the significant relationship between earnings and equity market values. This significant relationship was found in the measurement proxy of abnormal earnings, extraordinary earnings before items, earnings per share and net income. Meta-analysis also found that for proxy net income measurement required investigation of moderating variables.

Highlights

IntroductionOhlson (1995) developed a valuation model that relates the company's fundamental value with the book value of equity, abnormal earning and other relevant information
Ohlson (1995) developed a valuation model that relates the company's fundamental value with the book value of equity, abnormal earning and other relevant information. This model assumes the present value of an expected dividend which determines the market value, the clean surplus accounting and the linear information dynamics of abnormal earnings
The criticism draws on the empirical implications of the model (Holthausen and Watts, 2001) and the validity of the linear information dynamics in abnormal earnings (Lo and Lys, 2000; Myers, 1999; Burgstahler & Dichev, 1997; Bar-Yosef, Callen and Livnat, 1996; Ota, 2002; Dechow, Hutton and Sloan, 1999; Begley and Feltham, 2002)

Summary

Introduction

Ohlson (1995) developed a valuation model that relates the company's fundamental value with the book value of equity, abnormal earning and other relevant information. This model assumes the present value of an expected dividend which determines the market value, the clean surplus accounting and the linear information dynamics of abnormal earnings. This assumption changes the focus of the capital market research which is generally more empirical than theoretical (Beaver, 2002). The criticism draws on the empirical implications of the model (Holthausen and Watts, 2001) and the validity of the linear information dynamics in abnormal earnings (Lo and Lys, 2000; Myers, 1999; Burgstahler & Dichev, 1997; Bar-Yosef, Callen and Livnat, 1996; Ota, 2002; Dechow, Hutton and Sloan, 1999; Begley and Feltham, 2002)

Objectives

Findings

Discussion

Conclusion