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s were commenced and developed, one of the mostimportant issues attracted the attention of accounting researches has been to study the feasibility ofmaking link between accounting data and stock prices to thereby prove the accounting claim on itscontribution to the decision making of the users of information gained from accounting process. Todate various researches have been made to predict stock prices, any of which considers one or morevariable as being more effective on stock prices changes than others and, therefore, they attempted toreview the effect of the given variables by controlling other variables. In such a condition, someresearches try to submit models regarding time value of money. These models mainly have steadytheoretic principles. Discounted Cash Flow, Discounted Dividends and Discounted Abnormal Earningsmodels are of this category.
Using the clean surplus relationship and applying discounted dividend model, Ohlson (1995) submitted a model studied and tested by many researchers to date, and, some of them have occasionally found better results through its adjustment. Ohlson model (1992) comprises of two parts;in first part, with using linear information models, abnormal earnings of each period is introduced as appropriate basis for the forecast of next period’s abnormal earnings and in the second part it benefits from discounting the estimated abnormal earnings of the future periods for calculating the firm’s value.
2.1.1. Stock Valuation Models Based on Linear Information Models
The linear information models were initially presented by Ohlson (1995) and Feltham-Ohlson (1995).
In fact, the linear models are the dynamic models of information describing the time-series behavior of abnormal earnings. Dechow et al. (1999) stress that the real outcome of Ohlson (1995) and Feltham and Ohlson (1995) is that the linear models which they presented make a relationship between current information and firm’s inherent value.
Studies of Ohlson (1995) and Feltham-Ohlson (1995) have become the major Reference of researches regarding linear information models. The main contribution of these models is to provide a steady theoretic framework for stock valuation based on basic accounting variables (earning and book value). In addition, these models allow any other kind of information to involve in firm’s value forecast. Whereas, the results of previous studies dealing with the survey of these models do not confirm their usefulness in market prices forecast. The results suggest that the values calculated by
these models are lower than market value. We continue with the explanation on the principles of these models.
Discounted dividends models define the firm’s value as the present value of the future payable dividends as follows:
E d V t (1)
61 International Research Journal of Finance and Economics - Issue 36 (2010)
Where: V t : Market value of the firm's equity at time t
Et [dt+i]: Estimated dividends at time t+i
r: Discount rate or cost of capital
The concept of clean surplus is confirmed on this rule that the retained earnings is restricted to
the registration of earnings and dividends within the period. Hence, the relationship between the book
value of the stakeholders’ equity and the earnings and dividends can be stated as follows:
bt = bt−1+ X t − dt (2)
Where: bt: Book value of equity at time t
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