Determinants of Price Multiples for Technology Firms in Developed and Emerging Markets: Variable Selection Using Shrinkage Algorithm

Abstract

Globally, technology firms are characterized by high level of innovation, rapid obsolescence of technologies, high investment risk and unpredictability of future cash flows. All these make conventional discounted cash flow valuation methods inadequate for valuation of technology firms. This study aims to develop sector regression models for relative valuation of technology firms by evaluating firm-level determinants of price multiples. Results suggest that price to book is the most appropriate multiple for valuing developed market technological firms, whereas price to sales is the most apt multiple for emerging market firms. Variable selection by least absolute shrinkage and selection operator (lasso) validates that growth rate, research intensity and cash holding influence value of price multiples for both developed market and emerging market firms. Similarly, smaller firms tend to generate higher value of the multiples under both categories. Firms’ ESG practices is an important determinant of price multiples for developed market firms, however, it does not influence the multiples’ value for emerging market firms.

The Effects of the Covid-19 Pandemic on Corporate Social Responsibility and Business Performance in Companies Listed on the Warsaw Stock Exchange

“…CSR disclosures based on firm practises are becoming more important as determinants of institutional investment in social factors (Joshi and Chauhan, 2021;Park and Jang, 2021). In this sense, the objective of this study was twofold, first to analyse whether different business performance indicators differ significantly before and during the COVID-19 pandemic as performing with or without CSR principles, and second to identify the effects of different business performance indicators on the CSR orientation, and, moreover, to understand whether changes in these indicators during the COVID-19 pandemic affected an orientation towards the principles and values.…”

“…Since then, the COVID-19 pandemic has significantly impacted the principles of ESG and investment strategies (Díaz et al, 2021). ESG disclosures based on firm practices are becoming more important as determinants (Joshi and Chauhan, 2021) and institutional investment in social factors (Park and Jang, 2021). In the analysis of the effects of the COVID-19 pandemic, the practices and principles of companies have changed, as well as business performance (Boffo and Patalano, 2020).…”

Leader mindfulness and employee innovative work behaviour: a mediated moderation model

“…, 2017). Therefore, innovation has received substantial research attention in IT sector specifically in a developing country context (See, Joshi and Chauhan, 2021; Mittal and Dhar, 2015; Sharma and Nambudiri, 2020; Sharma and Kapoor, 2022; Siengthai et al. , 2019).…”

“…And to sustain in this disruptive environment, employee creativity is considered important for the success of the IT sector (Remane et al, 2017). Therefore, innovation has received substantial research attention in IT sector specifically in a developing country context (See, Joshi and Chauhan, 2021;Mittal and Dhar, 2015;Sharma and Nambudiri, 2020;Sharma and Kapoor, 2022;Siengthai et al, 2019). Third, studying the concept of mindfulness is gaining prominence in the IT sector wherein leadership has to be mindful of the emerging digital technologies to derive their benefits (Swanson and Ramiller, 2004).…”

Drivers of Value Creation and the Effect of ESG Risk Rating on Investor Perceptions through Financial Metrics

“…Ong et al [33] find that price/sales multiples are particularly relevant in IPOs, offering critical valuation for investors. Joshi and Chauhan [34] highlight that price/sales multiples are particularly suited for valuing companies in emerging markets, emphasizing the variability in the applicability of these indicators.…”