Accounting-based valuation with changing interest rates

Dan Gode, James Arvid Ohlson

Research output: Journal article publicationJournal articleAcademic researchpeer-review

10 Citations (Scopus)


This paper generalizes Ohlson's [Contemporary Accounting Research Vol. 11 No. 2. 661-687 (1995)] equity valuation framework to allow for stochastic interest rates. Much of this analysis initially deals with the specialized setting in which earnings suffice for cum-dividend value. In such a case, the beginning-of-period (lagged) rate determines the capitalization factor, not the current rate. The underlying earnings dynamic modifies the traditional random walk model via an additional term, namely current earnings multiplied by the percentage change in interest rates. The general model retains these basic aspects of the earnings-sufficiency setting. Empirical implications bear on the returns-to-earnings regression: The earnings-response coefficient decreases as the beginning-of-period rate increases.
Original languageEnglish
Pages (from-to)419-441
Number of pages23
JournalReview of Accounting Studies
Issue number4
Publication statusPublished - 1 Dec 2004
Externally publishedYes


  • Earnings response coefficient
  • Ohlson model
  • Permanent earnings
  • Random walk model of earnings
  • Stochastic interest rates
  • Valuation

ASJC Scopus subject areas

  • Accounting
  • General Business,Management and Accounting


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