Discussion of “On Accounting-Based Valuation Formulae” and “Expected EPS and EPS Growthas Determinants of Value”
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- Penman, S.H. Rev Acc Stud (2005) 10: 367. doi:10.1007/s11142-005-1536-2
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This discussion evaluates the abnormal earnings growth valuation (AEG) Model of Ohlson and Juettner-Nauroth and, in similar vein to the Ohlson review paper at this conference, compares the Model to the residual income valuation (RIV) Model that has been the centerpiece of accounting-based valuation in recent years. The discussion begins with a statement of what one looks for in a practical valuation model. The innovations of the AEG Model, well stated by Ohlson, are acknowledged. A comparison of the advantages and disadvantages of the alternative approaches provides some qualification, however, and draws out the utility of a residual income valuation approach.