Equity valuation models and target price accuracy in Europe: Evidence from equity reports

Imam, Shahed; Chan, Jacky Peng-Wen; Shah, Syed Zulfiqar Ali

doi:10.1016/j.irfa.2013.02.008

Cited by 52 publications

(66 citation statements)

References 50 publications

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“…It is shown that the mosaic provides a coherent means to combine ICI with other fragmented information to construct a broader picture of the company (Holland, 2006). (Barker, 1999, Bradshaw, 2002, Demirakos et al, 2004, Asquith et al, 2005, Imam et al, 2013.…”

Section: A Conceptual Framework Of Analysts' Use Of Intellectual Capimentioning

confidence: 99%

“…It is not RIV, but DCF and PE (or EV/EBITDA) which are in most common use among sell-side analysts (Brown et al, 2014, Demirakos et al, 2004, Imam et al, 2013 …”

Section: Valuation Models and Intellectual Capital As Inputsmentioning

confidence: 99%

“…5 The rationale for analysts' valuation model preferences is not yet well understood (Ohlson, 1995, Imam et al, 2013, but such decisions may reflect analysts' individual preferences (Lundholm and Sloan, 2004) and the influence of institutional investors .…”

mentioning

confidence: 99%

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The use of intellectual capital information by sell-side analysts in company valuation

Abhayawansa

Aleksanyan

Bahtsevanoglou

2015

Accounting and Business Research

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This paper investigates the role of intellectual capital information (ICI) in sell-side analysts' fundamental analysis and valuation of companies. Using in-depth semi-structured interviews it penetrates the black-box of analysts' valuation decision making by identifying and conceptualising the mechanisms and rationales by which ICI is integrated within their valuation decision processes.We find that capital market participants are not ambivalent to ICI, and ICI is used: (1) to form analysts' perceptions of the overall quality, strengths and future prospects of companies; (2) in deriving valuation model inputs; (3) in setting price targets and making investment recommendations; and (4) as an important and integral element in analyst-client communications. We show that: there is a 'pecking order' of mechanisms for incorporating ICI in valuations, based on quantifiability; IC valuation is grounded in valuation theory; there are designated entry points in the valuation process for ICI; and a number of factors affect analysts' ICI use in valuation. We also identify a need to redefine 'value-relevant' ICI to include non-price sensitive information; acknowledge the boundedness and contextuality of analysts' rationality and motives of their ICI use; and the important role of analyst-client meetings for ICI communication.

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Section: A Conceptual Framework Of Analysts' Use Of Intellectual Capimentioning

confidence: 99%

“…It is not RIV, but DCF and PE (or EV/EBITDA) which are in most common use among sell-side analysts (Brown et al, 2014, Demirakos et al, 2004, Imam et al, 2013 …”

Section: Valuation Models and Intellectual Capital As Inputsmentioning

confidence: 99%

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The use of intellectual capital information by sell-side analysts in company valuation

Abhayawansa

Aleksanyan

Bahtsevanoglou

2015

Accounting and Business Research

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“…Among the members of the discount family, the discounted cash flow model has traditionally been the dominant one in practice (Jennergren, 2008). The results obtained by Imam et al (2013) indicate that European investment analysts prefer to use cash flow based models in conjunction with non-book value based accrual models.…”

Section: Calculation Of the Ev Fmentioning

confidence: 99%

Valuation of agrifood SMEs. Lessons to be learnt from the stock market

Vidal¹,

Ribal

2018

Span. j. agric. res.

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The European agrifood industry is mostly characterized by small and medium enterprises (SMEs); as in 2013, SMEs represented 99.13% of the total number of companies. The valuation of SMEs not listed in any stock market is a complex task since there is not enough information on comparable transactions. When applying discounted cash flow (DCF) models to value private agrifood companies, the capital structure and the cost of equity are two key parameters to be determined. The implications of these parameters in the value of the enterprise are not clear inasmuch as it is not possible to carry out a contrast due, precisely, to the lack of comparables. The main goal of this study is to determine the biases that those two parameters can introduce into the valuation process of an agrifood company. We have used the stock market as a framework wherein to apply a simple fundamental model to the companies of the European food industry in order to obtain three valuation multiples. By means of two bootstrap approaches, the bias induced in the multiples has been assessed for every year from [2002][2003][2004][2005][2006][2007][2008][2009][2010][2011][2012][2013]. Results show that the use of the return on equity as cost of equity tends to undervaluation; the use of capital asset pricing model (CAPM) tends to a slight overvaluation, whereas using the total beta induces an undervaluation bias. Moreover, the capital structure shows little influence on the valuation multiples. The conclusions drawn from this paper can be useful for managers and shareholders of privately-held agrifood companies.

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“…Another perspective is offered by Imam et al (2013) who contend that book value-and ROEbased models produce the best forecasts. Hence, literature provides inconclusive evidence on which type of models are more accurate.…”

Section: Prior Research and Research Objectivesmentioning

confidence: 99%

Should Analysts Go by the Book? Valuation Models and Target Price Accuracy in an Emerging Market

Sayed

2015

Global Business Review

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Discounted cash flow (DCF)-based target price forecasts have the highest target price accuracy (TPA) of 70 per cent, while book value-based forecasts have the lowest TPA of 51.1 per cent for buy recommendations in India. Surprisingly, despite its superior performance, DCF is the least used valuation model as analysts prefer heuristics-driven earnings before interest, taxes, depreciation and amortization (EBITDA) or earnings multiples to produce target price forecasts. A significant and negative relationship with promoter holding explains the underperformance of book value-based target price forecasts-promoters possibly provide analysts with inflated book values which eventually result in inflated target price forecasts and lower target price accuracy.

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Equity valuation models and target price accuracy in Europe: Evidence from equity reports

Cited by 52 publications

References 50 publications

The use of intellectual capital information by sell-side analysts in company valuation

The use of intellectual capital information by sell-side analysts in company valuation

Valuation of agrifood SMEs. Lessons to be learnt from the stock market

Should Analysts Go by the Book? Valuation Models and Target Price Accuracy in an Emerging Market

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