A Generalized Earnings‐Based Stock Valuation Model with Learning

Jacoby, Gady; Paseka, Alexander; Wang, Yan

doi:10.1111/fire.12128

Cited by 2 publications

(2 citation statements)

References 82 publications

(117 reference statements)

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“…More specifically, we examine whether the market is willing to pay a premium to buy a company's stock with strong ESG records. Among investment valuation ratios, the price-to-earnings ratio (PER) is a widely-used measure of the expected performance of companies, and it is arguably the most well-known method to assess how expensive the stock of a company is, relative to the amount of earnings it generates [9]. One interpretation of PER is the measure of how much investors are willing to pay for each dollar of earnings the company generates.…”

Section: Introductionmentioning

confidence: 99%

Corporate Sustainability and Stock Value in Asian–Pacific Emerging Markets: Synergies or Tradeoffs among ESG Factors?

Budsaratragoon

Jitmaneeroj

2021

Sustainability

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We use structural equation modelling to examine whether multi-dimensional corporate sustainability (CS)—measured by environmental, social and governance (ESG) factors—affects stock value. We find that investors are willing to pay for each dollar of earnings that the highly rated ESG company generates. Moreover, the positive synergistic effect among the ESG factors implies that companies that focus on any single dimension or the equally weighted aggregation of ESG factors understate the value relevance of CS. In other words, successful sustainability practices should comprise all of the dimensions of CS in order to gain benefit from their synergistic effect with stock value. However, the synergistic effect among ESG factors does not imply that the individual components of CS should be weighted equally in sustainability practices. Our findings show that social engagement emerges as the main driver of CS and should be weighted more heavily than the other factors in sustainability practices. Interestingly, when we account for corporate economic performance, we find that investors put more (less) value on CS when corporate economic performance is weak (strong). This implies that economic performance and ESG performance contain similar information, and that their effects on stock value subsume each other.

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Section: Introductionmentioning

confidence: 99%

Corporate Sustainability and Stock Value in Asian–Pacific Emerging Markets: Synergies or Tradeoffs among ESG Factors?

Budsaratragoon

Jitmaneeroj

2021

Sustainability

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“…Efforts to integrate stochastic interest rates into the framework of firm valuation date back, at least, to Bogue and Roll (1974) and have been intensified in recent years. Examples include the papers of Berk et al (1999), Bakshi and Chen (2005), Dong and Hirshleifer (2005) and Jacoby et al (2017). Moreover, current work on evaluating investments with long-term consequences focuses on the effects of stochastic interest rates (Gollier and Weitzman, 2010;Farmer et al, 2015).…”

Section: Jel Classification -G32mentioning

confidence: 99%

What is the value of Facebook? Evidence from the Schwartz/Moon model

Schosser

Ströbele

2019

JRF

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Purpose On May 17, 2012, the social networking company Facebook Inc. fixes its initial public offering (IPO) price at $38.00 a share. Over the next couple of months, contrary to expectations raised by previous IPOs, the stock price crashes more than 50 per cent. Immediately, the question arises whether the issuer’s or the stock market’s pricing of the share are in line with the firm’s fundamentals. Thus, the purpose of this paper is to determine the company value in close proximity to the date of IPO. Design/methodology/approach As Facebook is an archetypal internet growth company, it is evaluated using the Schwartz/Moon model. This approach features significant advantages over traditional valuation models and more adequately captures the characteristics of growth companies. Findings As of September 30, 2012, the fundamental share value determined was $26.53, which exceeded the market price per share of $22.66 by 22.48 per cent, but was far less than the IPO stock price. The subsequent sensitivity analysis reveals the robustness of the result to key input parameters. Originality/value The results raise doubts about the IPO price of Facebook. Furthermore, this paper is of value from a more conceptual perspective in that an extended version of the Schwartz/Moon model is provided. Beyond extensions previously discussed in the subject-based literature, the authors include stochastic interest rates (as an additional source of uncertainty) and investigate their valuation effects.

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A Generalized Earnings‐Based Stock Valuation Model with Learning

Cited by 2 publications

References 82 publications

Corporate Sustainability and Stock Value in Asian–Pacific Emerging Markets: Synergies or Tradeoffs among ESG Factors?

Corporate Sustainability and Stock Value in Asian–Pacific Emerging Markets: Synergies or Tradeoffs among ESG Factors?

What is the value of Facebook? Evidence from the Schwartz/Moon model

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