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Positive (Zero) NPV Projects and the Behavior of Residual Earnings
Author(s) -
Ohlson James A.
Publication year - 2003
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00480
Subject(s) - earnings , economic rent , context (archaeology) , residual , economics , econometrics , financial economics , mathematics , accounting , microeconomics , geography , algorithm , archaeology
This paper analyzes the time‐series behavior of residual earnings as it relates to the existence of positive NPV opportunities (or ‘rents’). The issue is of interest because many recent papers (e.g., Lo and Lys, 1999; and Holthausen and Watts, 2001) have commented on it in the context of the Ohlson (1995) model. The analysis shows that the Ohlson (1995) model allows for positive NPV opportunities, contrary to the frequently made claims.