An empirical examination of the Ohlson (1995) model

Abstract

This paper examines the Ohlson (1995) model and documents its validity in explaining share prices using data for 129 firms continuously listed on the Johannesburg Securities Exchange (JSE hereafter), over a twelve year period. More specifically, cross-sectional multiple regressions and panel data least squares procedures are used to examine whether accrual accounting information and a residual income model are useful in explaining variations in year-end share prices. The cross-sectional results indicate that the Ohlson (1995) model does not establish a significant relationship between year-end share prices and accrual accounting information. However, the panel data least square model resulted in significant and positive relationships between year-end share prices and abnormal earnings, abnormal cash dividends and book value of assets.

Key Words:

• Equity Valuation
• Accrual Accounting
• Ohlson Model
• JSE
• South Africa