Appropriate Calibration of Accounting-based Business Valuation Models
Appropriate Calibration of Accounting-based Business Valuation Models
Accounting-based valuation models play a prominent role not only in empirical valuation research, but also in the practice of business valuation. The main characteristic of these models is their use of input parameters obtained from balance sheets or income statements – usually book value and earnings. In addition, these models typically employ return-oriented business expectations of these parameters. The model central to empirical valuation research is Ohlson (1995), which assumes an autoregressive stochastic process for future residual earnings. The Ohlson model has been used to analyze value relevance of both financial and non-financial factors, such as corporate government structures, employee satisfaction etc. It has been extensively modified over the last few years in order to refine the assumed process of residual earnings and to include new theoretical findings on business valuation and asset valuation. This project’s aim is to classify and compare these recent developments with regard to their respective ability to explain stock prices. This analysis will be based on a comprehensive empirical study, drawing on contemporary econometrics techniques, which will serve to analyze the prediction ability of various linear information models for equity valuation.