Ohlson Model Testability:Empirical Tests Findings

This paper analyses the empirical testability of Ohlson Model (OM). Themethodology used comprises: (i) exploratory research with regards to the studyobjective; (ii) bibliography research with regards to the applicable procedures; and(iii) qualitative research with regards to problem approach. Literature research hascomprised both origin (dividend discount, assessment of residual income etc) and themodel subjacent theory. The linear information dynamics (LID) and the assessmentformulae were discussed concerning the model internal consistency, as well as theestablishment of the required inputs (parameters and variables). Empirical studieshave been analyzed both in terms of their structuring and their achieved results. Thestudy has concluded that: (1) no consensus has yet been achieved over theappropriate way to measure the parameters of persistency; (2) doubts as to theappropriate way of capturing the parameters w and g , and the variable n preventsverification of the effective explanatory capabilities of the Ohlson Model; (3) empiricaltestability is limited to absences of consistent proxies that may capture persistencyand previsibility of the institution’s future income.