Reconciling Value Estimates from the Discounted Cash Flow Model and the Residual Income Model

• 成果类型: Article
• 署名作者: Lundholm, Russell; O'Keefe, Terry
• 署名单位: University of Michigan System; University of Michigan; University of Oregon; University of Queensland
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1506/W13B-K4BT-455N-TTR2
• 发表日期: 2001
• 页码: 311-335
• 关键词: earnings

摘要

This paper examines why practitioners and researchers get different estimates of equity value when they use a discounted cash flow (CF) model versus a residual income (RI) model. Both models are derived from the same underlying assumption - that price is the present value of expected future net dividends discounted at the cost of equity capital - but in practice and in research they frequently yield different estimates. We argue that the research literature devoted to comparing the accuracy of these two models is misguided; properly implemented, both models yield identical valuations for all firms in all years. We identify how prior research has applied inconsistent assumptions to the two models and show how these seemingly small errors cause surprisingly large differences in the value estimates.