Comparison of Valuation Models under Different Life Cycle Stages

• Main Authors: Ting-TingHsu, 許婷婷
• Other Authors: Hsuan-Chu Lin
• Format: Others
• Language: en_US
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/28674139806197198287

碩士 === 國立成功大學 === 財務金融研究所 === 98 === In practical, the abnormal earnings model (AE) and the discounted free cash flow model (DCF) are two common models for people to estimate the firm value. However, Adize (1988) mentions that elasticity and control power are the two key factors which affect the firm life cycle. According to the balance of these two factors, each firm will progress through various stages during their life cycle. Under different stages, the operation style and the factors that affect the firm value will also change. Therefore, there will be errors if we still use the same valuation model for different life cycle stages firms. So, in this paper, we want to know which valuation model is more appropriate under each life cycle stages. We adopt the firms in COMPUSTAT as our samples and apply the method of Anthony and Ramesh (1992) to classify samples into different stages. According to the empirical results, the errors of the valuation models by considering the life cycle factors are generally lower than those not consider the life cycle factors. The tests also reveal that the predicted errors between the AE model and the DCF model are not significant different under the growth stage and stagnant stage. However, the errors of the two models are significant different under mature stage. Therefore, we have the conclusions as follow: (1) Life cycle factors will affect the accuracy of the valuation models. (2) Under the growth stage and stagnant stage, the AE model is at least as well as the DCF model. (3) Under the mature stage, the AE model is more suitable than the DCF model.