G.A. Karathanassis and S.N. Spilioti
Early theoretical work on equity valuation suggests that equity prices are determined by variables such as dividends and growth in dividends. However, these “traditional” views…
Abstract
Early theoretical work on equity valuation suggests that equity prices are determined by variables such as dividends and growth in dividends. However, these “traditional” views have been challenged by recent studies that seem to indicate that equity prices are determined by book value and discounted future abnormal earnings. This paper employs panel data methodology and equity prices from Athens Stock Exchange empirically to compare the performance of the traditional and the more recent models of equity valuation. The results show that the performance of the Ohlosn (1995) model is quite similar to that of the traditional models even though in some cases Ohlson’s model performance appears to be superior.
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The paper compares the Net Present Value and the Internal Rate of Return Methods paying particular attention to Mutually Exclusive Projects. In addition it looks into the…
Abstract
The paper compares the Net Present Value and the Internal Rate of Return Methods paying particular attention to Mutually Exclusive Projects. In addition it looks into the reinvestment rate assumption concept. Using a different approach to those used to‐date, it is shown that the reinvestment assumption should not concern analysts, provided they use the Net Present Value Method.
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Day‐Yang Liu, Kuo‐An Tseng and Szu‐Wei Yen
The purpose of this paper is to examine the validity of the Ohlson model and to explore the influence of intellectual capital (IC) on corporate value (V) and value creation (VC…
Abstract
Purpose
The purpose of this paper is to examine the validity of the Ohlson model and to explore the influence of intellectual capital (IC) on corporate value (V) and value creation (VC) in order to develop a business valuation model served as the managerial criterion of IC.
Design/methodology/approach
Hypotheses are based on current research on the Ohlson model and IC. Descriptive statistics are used to find the data patterns. Information content and incremental information provided by various capital sources are validated through multiple and stepwise regression.
Findings
Corporate value is measured by both IC and financial capital (FC). The Ohlson model with FC reveals information that is significant in corporate value. Besides, FC and IC – mainly, innovation and human capital – contains a great deal of incremental information in terms of V and VC.
Research limitations/implications
In addition to financial statement, IC must be taken into account when intending to do business valuation.
Practical implications
To create higher corporate value, corporations must actively place a high premium on their IC and manage it well, particularly for innovation and human capital.
Originality/value
This paper focuses on the information technology industry in Taiwan. It, respectively, uses the share price and price and book value models to represent V and VC. It cites the more complete four aspects of IC, which are referred to as “other information”, to combine IC and the Ohlson model.
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Ken-Yien Leong, Mohamed Ariff, Zarei Alireza and M. Ishaq Bhatti
The objective of this paper is to investigate the validity of stock valuation theories and their forecasting ability by conducting an empirical study. It employs four most…
Abstract
Purpose
The objective of this paper is to investigate the validity of stock valuation theories and their forecasting ability by conducting an empirical study. It employs four most commonly used theories which are then tested using 19-year banking-firm market data. The usefulness of these models demonstrates with promising results.
Design/methodology/approach
This paper conducts a multi-country study using the multi-model testing approach to evaluate validity of theories and forecast accuracy of banking firms. It employs four methodology models used in finance literature; (1) P/E multiples model, (2) accounting-information-based clean surplus model, (3) theoretical model based on Gordon and Shapiro (1956) method and (4) the Damodaran-Kottler Free Cash Flow or FCF theory based on discounting model.
Findings
The tests show that the four theories under tests have a significant fit with actual price formation. The explained variation ranges from 72 to 92%, so the explanatory power of the theories accounting for variations in bank prices over 19-year period is substantial. The models fit suggest that the P/E model has superior predictive power followed by the RIM, DDM and FCFE. These findings shed new lights on the relative performance of valuation models.
Research limitations/implications
The study is limited in terms of the sample period size for 1999–2019. The availability of essential financial data prior to 2000 is very limited, so one can understand interpretation of statistical results under certain assumptions.
Practical implications
The paper suggests that one-factor model is better than the two-factor model.
Originality/value
The work done in this paper is unpublished and original contribution to banking and finance literature and also not under consideration for publication in any other journal.
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Kuo-An Tseng, Ching-I Lin and Szu-Wei Yen
The purpose of this paper is to investigate the relationship among intellectual capital (IC), financial capital (FC), firm value (V), and value creation (VC) in different business…
Abstract
Purpose
The purpose of this paper is to investigate the relationship among intellectual capital (IC), financial capital (FC), firm value (V), and value creation (VC) in different business cycles (BC) for the conduct of strategic management that will maintain stable values and further increase V.
Design/methodology/approach
This research cites ICs as “other information” to combine ICs and the Ohlson model. Information provided by various capitals is validated by multiple regression analysis. Multi-group analysis is performed to test whether the coefficient is moderated by BC.
Findings
Results indicate the significant information of ICs and FC, and the contingency perspective of BC. The value relevance of ICs is moderated by BC. Prosperity has more explanatory capacities, and recession ICs yield more incremental information.
Research limitations/implications
VC is influenced by both ICs and FC. Besides, the macroeconomic situation should also be considered in strategic management and VC management.
Practical implications
In addition to ICs and FC, the macroeconomic situation must be taken into account when conducting strategic management, valuation management, investment decision, or industrial policy.
Social implications
Results indicate a contingency of BC, which can be a reference for enterprises to create higher V, for investors to make appropriate investment, as well as for governments to formulate sound industrial policies.
Originality/value
This paper applies BC to explore the value relevance of ICs and FC, leverages two models to represent V and VC, and cites complete four aspects of IC as “other information” to combine ICs and Ohlson model.
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The effectiveness of corporate governance enforcement is a complex issue requiring the understanding of the role of institutional factors. The latter may or may not converge…
Abstract
Purpose
The effectiveness of corporate governance enforcement is a complex issue requiring the understanding of the role of institutional factors. The latter may or may not converge towards best practices, depending upon the extent to which history and politics matter more than purely economic or efficiency‐related considerations for convergence. The appropriateness and effectiveness of corporate governance enforcement mechanisms differ among market economies and cannot be attributed to one single factor nor does any such factor have the same significance in all countries as it depends on the relative state of development of financial intermediation. This paper aims to address these issues.
Design/methodology/approach
A critique is launched on the hypothesis of legal conformity used to explain the deviation of corporate governance practices and enforcement efficiency from is considered as best practice. The critique follows an historical development approach and is substantiated with some new empirical evidence of ownership structures and market views.
Findings
Empirical evidence on ownership structures and on the market views regarding the effectiveness of corporate governance legislation shows that for an understanding of the relationship between financial intermediation and corporate governance broader institutional influences must be taken into consideration.
Research limitations/implications
The analysis of empirical evidence needs detailed expansion and proper association with institutional elements to provide a more comprehensive understanding of corporate governance enforcement efficiency.
Practical implications
The exercise of corporate governance enforcement is an interactive process that goes beyond the role of legal rules and must combine an optimal set of private and public mechanisms properly tailored to each corporate governance regime.
Originality/value
New empirical evidence is provided on ownership structures and on the market view regarding the effectiveness of corporate governance legislation and a broader account is provided on institutional setting for understanding corporate governance policy.
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David DeBoeuf, Hongbok Lee, Don Johnson and Maksim Masharuev
The purpose of this paper is to contribute to financial managers’ capital budgeting decision-making processes by proposing a new paradigm of capital investment appraisal. The…
Abstract
Purpose
The purpose of this paper is to contribute to financial managers’ capital budgeting decision-making processes by proposing a new paradigm of capital investment appraisal. The expected return, required return structure of the proposed purchasing power return (PPR) methodology eliminates the many flaws associated with the competing internal rate of return (IRR) and modified IRR (MIRR) techniques.
Design/methodology/approach
The authors provide a new framework for examining long-term investment projects through a percentage return prism. Unlike that of IRR and MIRR, mathematical consistency with net present value (NPV) is a design requirement.
Findings
PPR eliminates the many flaws found in the IRR and MIRR methodologies, is mathematically consistent with NPV, and identifies positive-NPV investments forecasted to reduce the company’s purchasing power. These projects are acceptable under NPV, but flagged for additional review and potential rejection. Created to examine projects on a percentage return basis, PPR employs market-based inflation rates to convert all cash flows into constant purchasing power units of measure. From these units, an expected real return is estimated and compared to the project’s inflation-adjusted required return, resulting in an accept/reject decision consistent with that of NPV.
Originality/value
The proposed PPR is a new paradigm of capital investment appraisal that eliminates the many problems found in the IRR and MIRR techniques, is mathematically consistent with the NPV method, and helps financial decision makers examine investment projects on an expected percentage return basis. PPR also flags for further review projects expected to actually reduce the company’s purchasing power.
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Ade Thompson Ojo and Olusegun Felix Ayadi
The purpose of this paper is to investigate if the prevalence of corruption and other unwholesome financial practices in Nigeria contributed substantially to the stunted growth of…
Abstract
Purpose
The purpose of this paper is to investigate if the prevalence of corruption and other unwholesome financial practices in Nigeria contributed substantially to the stunted growth of the capital market in general, and the stock market in particular.
Design/methodology/approach
The paper employed Gregory–Hansen cointegration approach to test the long-run equilibrium relationship between the occurrence of predatory banking practices and stock market capitalization in Nigeria.
Findings
There exists a long-run equilibrium relationship between bank fraud and stock market capitalization but with a structural break in 2005.
Practical implications
There is an urgent need to overhaul and re-assess from time to time the existing systems of internal checks and controls in banks, as well as other financial institutions in Nigeria.
Originality/value
This paper is the first to empirically test the long-run equilibrium relationship between bank fraud and stock market capitalization in Nigeria.
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George Karathanassis, Nikolaos Philippas, Efthymios G. Tsionas and Demosthenes Hevas
In this paper we investigate the influence of institutional investors on share prices using data from companies quoted on the Athens Stock Exchange. For finance theorists the…
Abstract
In this paper we investigate the influence of institutional investors on share prices using data from companies quoted on the Athens Stock Exchange. For finance theorists the value of an investment, real or financial, is a function of its expected benefits and the riskiness of these benefits. Whatever influences are exerted by the structure of equity ownership are diversified away by efficient risk‐averse investors. Managerial and agency theorists argue that the particular ownership structure may have an effect on share value or returns. Their arguments are based (mainly) on the consequences of the separation of ownership from control. In addition to traditional methods of estimation we have used Chamberlain’s (1982) multivariate panel data estimator, which allows for arbitrary patterns of error autocorrelation and parameter temporal behavior. Among all alternative methods of estimation used, only this one produced a statistically significant and econometrically well specified relationship between share prices and institutional shareholdings.
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David Hughes, Richard Hutchins and Vassia Karathanassi
The article examines how purchase involvement theory can be used to assist marketing management in making more effective marketing mix decisions. The relationships between product…
Abstract
The article examines how purchase involvement theory can be used to assist marketing management in making more effective marketing mix decisions. The relationships between product purchase involvement and its antecedents are analysed, using examples from the Greek market for cheese. Mechanisms for measuring purchase involvement are identified. Product profiles are constructed for varieties of cheese and their usefulness as a segmentation tool is discussed. Implications of the results for marketing management and areas for further research are identified.