A Test of the Ohlson (1995) Model : Empirical Evidence from Japan

This paper investigates the validity of the Ohlson (1995) information dynamics (Linear Information Model: LIM) and attempts to improve the LIM. The difficulty concerning the empirical tests of the LIM lies in identifying v, which denotes information other than abnormal earnings. Recent papers, such as those of Myers (1999), Hands and Landsman (1999), and Barth et al. (1999), all try to specify v by using various accounting information. Instead of tackling this difficult task, this paper focuses on serial correlation in the error terms caused by omitting the necessary variable v from the regression equation. The results indicate that adjustment for serial correlation leads to an improvement on the LIM