Reconciling Value Estimates from the Discounted Cash Flow Model and the Residual Income Model

By Russell J. Lundholm, T. O'Keefe. 2001

244 citations recorded by the source corpus.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/21abb9ee1385e0763a6d0a26caf9bd69aa22fc7c

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Accounting

In Strategy and Management

Citations in the corpus

Valuation Approaches and Metrics: A Survey of the Theory and Evidence (2007, background): “In a similar vein, Feltham and Ohlson (1995), Penman (1998), and Lundholm and O’Keefe (2001) all provide proof that equity excess return models converge on equity discounted cash flow models. The model values can diverge because of differences in assumptions and in ease of estimation. Penman and Sou”
Accounting Anomalies and Fundamental Analysis: A Review of Recent Research Advances (2010, background): “Mashruwala et al. (2006) find that the accruals anomaly is concentrated in firms with high idiosyncratic return volatility, low price, and low volume, suggesting that transaction costs may provide an obstacle to investors to trade away the accrual anomaly.”
Accounting based valuation models: What have we learned? (2004, unknown): “There has been considerable controversy in the published literature surrounding the equivalence, for finite forecast horizons, of the discounted cash flow (DCF) model versus the Edwards-Bell-Ohlson RIM. For a flavour of this controversy, see the exchange between Penman (2001) and Lundholm and O’Keef”
On Comparing Cash Flow and Accrual Accounting Models for Use in Equity Valuation: A Response to Lundholm and O'Keefe (CAR, Summer 2001) (2001, unknown): “Lundholm and O’Keefe’s point with regard to the discount rate applies standard corporate finance theory on the cost of capital. Unfortunately, despite the advances in theory, good estimates of the cost of capital have proved elusive. Accounting-based valuation research is an innovation precisely bec”
Corporate Social Responsibility and Firm Value: Disaggregating the Effects on Cash Flow, Risk and Growth (2013, background): “1 Firms can be valued in various ways, for example, at the enterprise level (that is to say, the combined value of the firm’s debt and equity) or at the equity or shareholder level (which involves valuing firm level cash flows at the equity cost of capital), but properly calculated the results are a”
Understanding Earnings Quality: A Review of the Proxies, Their Determinants and Their Consequences (2010, background): “…at predicting future cash flows, while 21 Note that under clean surplus accounting, as long as the same set of forecasting assumptions are applied, a DCF model and a residual income model will yield equivalent valuations (e.g., Penman, 1998; Penman and Sougiannis, 1998; Lundholm and O’Keefe, 2001).”