Efficiency of the Feltham-Ohlson (1995) Model in Tehran Stock Exchange

Document Type : Research Paper



This study seeks to examine efficiency of Feltham- Ohlsen (1995) valuation model in the Tehran Stock Exchange and is trying to identify relation between intrinsic company value and return. This model is trying to determine the intrinsic value of company using their book value. Statistical community of this study includes all TSE accepted companies and statistical sample is including 89 TSE accepted  companies from different industry and data for these firms are analyzed interval 1998 to 2009 using Time series-Cross sectional (panel data) regression model. Results show that the model above boldly dose' not able to determine the intrinsic value of companies. The relationship between intrinsic value to market value ratio and price to earning value ratio is not statistically significant. In addition, companies that have little intrinsic value to market value ratios are higher than the market are assessed.


-      هاشمی، سید عباس، سعید صمدی و افسانه سروش یار (1389)، ارزیابی توانمندی اجزای نقدی و تعهدی سود در پیش بینی سود غیرعادی و تعیین ارزش شرکت های پذیرفته شده در بورس اوراق بهادار تهران، پژوهشهای حسابداری مالی ، شماره 3 ، ص‌ص. 112-93.
-      فدایی‌نژاد، محمداسماعیل، و مجید عشقی، (1385)، بررسی وجود حباب در بورس اوراق بهادار ایران، ماهنامه بورس، شماره 53 ، مرداد، ص‌ص. 49-44.
-      قالیباف‌اصل، حسن، و محبوبه ناطقی، (1385)، بررسی کارایی در سطح ضعیف در بورس اوراق بهادار تهران (بررسی زیر بخشی بازار)، تحقیقات مالی، شماره 22، ص‌ص. 20-3.
-      نمازی، محمد و نزکیه شوشتریان ، (1375) «مروری بر آزمون‌های کارایی بورس اوراق بهادار ضعیف، تحقیقات مالی، شماره 11 و 12، ص‌ص 109-62.
-      یاری، کامبیز فرقاندوست حقیقی، (1381)، چگونه سهام بخریم، بورس، شماره 33.
-       Anand, P. and Faseruk, A. (2008), "A review of accrual accounting and cash flow techniques for use in equity valuation", Management Research News, Vol. 31, No. 6, pp. 418-433.
-        Ahmed, A.S., Morton, R.M., and Schaefer T.F. (2000), "Accounting conservatism and the valuation of accounting numbers: evidence of the Feltham-Ohlson (1996) model", Journal of Accounting, Auditing & Finance, Vol. 15, No. 3, page. 271.
-       Bauman M.P. (1997), "essays in accounting-based equity valuation", Working Paper, University of Wisconsin-Madison
-       Beaver, W.H. and Ryan, S.G. (1997), "Biased (conservative) and delayed accounting recognition and their effects on the ability of the Book-to-Market ratio to predict book return on equity", Working Paper, Stanford University and New York University.
-       Callen, J.L. and Segal, D. (2005), "Empirical test of the Feltham-Ohlson (1995) model", Review of Accounting Studies, Vol. 10, pp. 409–429.
-        Dahmash, F. and Durand, R. (2009), “The value relevance and reliability of reported goodwill and identifiable intangible assets” The British Accounting Review,  Vol. 41, No 2, pp 120-137.
-       Dechow, P.M., Hutton, A.P. and Sloan, R.G. (1998), "An empirical assessment of the residual income valuation model", Working paper, University of Michigan and Harvard University.
-       Fadaeinejad, M., and Eshghi, M. (2006), "An investigation into the existence of bubble at stock exchange of Iran", Bourse, No. 53, pp. 44-49.
-       Feltham, G., and Ohlson, J., (1995), "Valuation and clean surplus accounting for operating and financial activates", Contemporary Accounting Research, Vol. 1, No. 2, pp. 689-731
-       Giner, B. and Iniguez, R., (2006), "An empirical assessment of the Feltham-Ohlson models considering the sign of abnormal earnings", Accounting and Business Research, Vol. 36, No. 3, page. 169.
-       Khodadadi, V., and Ememi, M.R. (2010), "Comparative assessment of Feltham–Ohlson sign-oriented & traditional models", International Research Journal of Finance and Economics, No. 36, pp. 59-74.
-       Liu, J. and Ohlson, J.A. (2000), "The Feltham-Ohlson (1995) model: empirical implications", Journal of Accounting, Auditing & Finance, Vol. 15, No. 3, page. 321.
-       Lundholm, R.J. (1995), "A tutorial on Ohlson and Felthal-Ohlson models: answer to som frequently asked questions", Contemporary Accounting Research, Vol. 11, No. 2, pp. 749-761.
-       Moore M.E. (2002), "Intangible asset valuation using the Feltham-Ohlson fframework and real option analysis: theory and empirical evidence", Working Paper, The State University of New Jersey.
-       Myers, J.N. (1999), "Implementing residual income valuation With linear information dynamics", The Accounting Review, Vol. 74, No. 1, pp. 1-28.
-       Ohlson, J.A. (1979), "Risk, return, security-valuation and the stochastic behavior of accounting numbers", The Journal of Financial and Quantitative Analysis, Vol. 14, No. 2, pp. 317-36.
-       Ohlson, J. (1995), "Earnings, book values, and dividends in security valuation", Contemporary Accounting Research, Vol. 11, pp. 661-687
-       Pillay, C.A. (2004), "Can fundamental value predict stock Returns? an empirical assessment of the Feltham-Ohlson model", Working Paper, College of Administration and Business Louisiana Tech University
-       Rutterford, J. (2004), "From dividend yield to discounted cash flow: a history of UK and US equity valuation techniques", Accounting Business and Financial History, Vol. 14, No. 2, pp. 115-49.
-       Stober, T.L. (1996), "Do prices behave as if accounting is conservatism? cross-sectional evidence from the Feltham-Ohlson valuation model." Working Paper, University of Notre Dame.
-       Zeng, T. (2003), "Feltham-Ohlson framework: The implication of corporate tax", Review of Accounting & Finance, Vol. 2, No. 4, pp. 38-62
-       Zeng T.(2006), "Tax effect on firm valuation under clean surplus accounting" , Journal of American Academy of Business, Vol. 9, No. 2, pp. 300-306.