Review and Comments on Accrual Accounting Valuation Models

Min Liu, Rupert Rhodd


Early work by Miller and Modigliani (1961) proposes that a firm’s value is irrelevant to its dividend policy and relevant to its risk (i.e., earnings risk, volatility risk...) (Modigliani and Miller 1958). Inspired by Miller and Modigliani’s works, a line of research has developed accrual accounting valuation models based on the results of dividends policy irrelevance (i.e., Feltham and Ohlson, 1995; Ohlson, 1995; Penman, 2010; and etc.). Because of the profound effects of the accrual accounting valuation models on academic research and investment practices, any possible improvements will not be trivial. This paper reviews two popular accrual accounting valuation models and provides some comments on these models and future research suggestions for this line of research.

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