Journal of Business Valuation and Economic Loss Analysis

Published by De Gruyter

Volume 13 Issue 1 -

February 2018

Issue of Journal of Business Valuation and Economic Loss Analysis

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Contents
Journal Overview

May 10, 2017

Do Valuation Multiples Reflect a Size Effect?

Bradford Cornell, Rajiv Gokhale

Article number: 20150013

Abstract

In this paper, we empirically examine whether there is evidence to support the hypothesis that a size premium is impounded in valuation multiples. Overall, we find essentially no evidence to support the hypothesis. One interpretation of this finding is that there is no size effect in current U.S. data. If that is true, then size premiums should not be added to the discount rate and there is no potential inconsistency with the market multiples approach. However, if an appraiser chooses to add a size premium to the discount rate based on historical return data such as that reported by Ibbotson, it raises the possibility the DCF value indicator will be inconsistent with the value indicator based on market multiples. Given the fact that virtually all corporate appraisals include both a DCF and a market multiples analysis our work suggests that the two approaches should be blended with care in situations where a size premium is contemplated.

December 9, 2017

A Tool Kit for Discounted Cash Flow Valuation: Consistent and Inconsistent Ways to Value Risky Cash Flows

Andreas Schueler

Article number: 20160012

Abstract

The DCF method or multiples are used to value companies in practice. Starting with the value additivity principle, the paper presents a general framework for DCF valuation. This framework allows defining stepwise and aggregated approaches to value risky cash flows and identifying inconsistent approaches. The framework helps to integrate sales, contribution margin, operating leverage, and financial leverage into valuation approaches and shows the assumptions implied when multiples are used.

December 9, 2017

_{Valuing Historical Claims of Loss of Use of Land with Sparse Data}

Fred Lazar, Eliezer Z Prisman

Article number: 20170007

Abstract

There have been numerous historical claims by First Nations across Canada for damages resulting from the taking of land and the resulting loss of use of such land. Many of these cases have come before the courts. Generally in such cases, there is agreement that either the Federal Government and/or a provincial government has not fulfilled its fiduciary duty. Hence, the disputes before the courts usually pertain to valuing the losses of the First Nation(s) who is (are) the Plaintiff(s) in these cases. Since the original taking of the lands occurred many decades in the past, the court is challenged with difficult valuation issues, which are complicated by a lack of historical data and transaction records. Hence, even if the parties agree on the methodology for valuing the losses and on an annual lease rate, they still need to determine the annual price of the land. A common practice for generating a price trajectory for the land is to use a very small sample of land prices, and interpolate between these prices to estimate the intervening land prices. This practice does not generate the expected trajectory given the known observations. It implicitly assumes a deterministic price process with an annual fixed appreciation of the asset throughout the period. These assumptions are inconsistent both with realistic price movements and the literature modeling asset price processes. Consequently this practice can, and mostly does, generate a very significant bias in the value of the loss. This paper suggests a loss of use valuation method that is based on a land price process consistent with the literature modeling asset price processes.

December 2, 2017

How the Equity Terminal Value Influences the Value of the Firm?

Alfonso A. Rojo-Ramírez, Maria J. Martínez-Romero, Teresa Mariño-Garrido

Article number: 20170010

Abstract

The discounted cash flow model (DCFM) views the intrinsic value of common stock as the present value of its expected future cash flows. This paper analyses whether the equity terminal value (EqTV) of the firm calculated by fundamentals is appreciated by the market. It also studies the impact of variations in EqTV and the extent to which the market perceives these variations. Using a sample of 62 Spanish listed companies, this paper shows that EqTV and its variations are positively and significantly correlated with EqTV assigned by the market and its corresponding variations. It therefore corroborates the validity and relevance of the valuation model.

About this journal

Objective
The Journal of Business Valuation and Economic Loss Analysis (JBVELA) is a refereed academic journal that publishes continuously throughout the year and is co-edited by Bradley Ewing and James Hoffman. The mission of the Journal of Business Valuation and Economic Loss Analysis is to improve the practice of business valuation, economic loss analysis, and risk management by helping to inform academics, practitioners, and attorneys about theoretical and practical developments in these fields.

Topics

business valuation
economic loss analysis
risk management

Article formats
Research articles
The journal publishes three categories of manuscripts. The first category encompasses both empirically- and conceptually-based manuscripts that advance the fields of business valuation, economic loss analysis, or topics related to risk. The second category of manuscripts focus on the description of how theory has been put into practice, including case study examples. The third category of manuscripts concerns how recent rulings and changes in the law affect business valuation, economic loss analysis, and risk management practices, assessment, and analysis.

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