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Wilfrid Laurier University Leaf
October 30, 2014

Canadian Excellence

Tao Zeng




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email: Tao Zeng
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Tao Zeng

Feltham - Ohlson Framework: The Implication of Corporate Tax (ABSTRACT)


Zeng, T.

published: 2003 | Research publication | Refereed Journals - Accounting

Zeng, T. (2003). "Feltham - Ohlson Framework: The Implication of Corporate Tax". Review of Accocunting and Finance, 3 (3), 38-63.


ABSTRACT: This article provides an empirical work in order to test the tax-adjusted market valuation (residual income) model. Feltham-Ohlson's (1995) residual income model can be extended by adding corporate tax: firm market value is a function of the bottom line after-tax accounting data, e.g., book value and after-tax earnings. An empirical analysis, using the financial reporting data of Canadian firms for the years 1994-1999, demonstrates that the current book value of financial assets and operating assets, abnormal operating earnings, and abnormal financial earnings are all relevant to firm market value. The sensitivity tests, which define the corporate tax rates in different ways, do not change the results. The sensitivity test, which uses the financial analysts' forecasts, does not change the results, either.

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revised Jan 18/05

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