Positive (Zero) NPV Projects and the Behavior of Residual Earnings

James A. Ohlson

Journal of Business Finance & Accounting, 2003, vol. 30, issue 1‐2, 7-16

Abstract: 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.

Date: 2003
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