The Feltham-Ohlson (1995) Model: Empirical Implications

Jing Liu, James Arvid Ohlson

Research output: Journal article publicationReview articleAcademic researchpeer-review

41 Citations (Scopus)


This paper develops empirical implications of the Feltham and Ohlson (1995) model, which relates a firm’s market value to accounting data and their expected realizations. The key issue concerns how one conceptualizes/measures a firm’s expected growth to explain its market value when the model also includes more basic accounting measures reflecting its current performance. It is shown that market value can be expressed in terms of (1) financial assets (liabilities) with a coefficient of 1, (2) the expected change in operating earnings with a nonnegative coefficient, (3) the expected operating earnings with a positive coefficient, (4) current (net) operating assets with a nonnegative coefficient, and (5) the expected change in (net) operating assets with a positive coefficient. One identifies the measure of a firm’s expected growth by normalizing the last variable with current (net) operating assets. The variable will be relevant if and only if the accounting is conservative.
Original languageEnglish
Pages (from-to)321-331
Number of pages11
JournalJournal of Accounting, Auditing & Finance
Issue number3
Publication statusPublished - 1 Jan 2000
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)


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