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The purpose of this paper is to investigate the effect of equity market misvaluation on manager behavior. Using a sample of 535 French-listed over 2000–2018, the authors analyze whether corporate investment decision is sensitive to equity market overvaluation.

The study adopts market-to-book (M/B) decomposition developed by Rhodes-Kropf and Viswanathan (2004, RKV) that proxies for market misvaluation at the firm and industry levels. The authors conducted a long-term performance analysis via a portfolio sorting procedure and a Carhart (1997) four-factor pricing model. The authors tested the relationship between equity misvaluation, corporate investment decisions and equity issuance. The authors ran several robustness tests.

The empirical results show that equity market misvaluation affects corporate investment positively as the stock price deviates further away from its fundamental. Based on market timing theory, the authors find that corporate investment occurs in periods of high valuation motivated by equity issuance to benefit from the low cost of capital. This effect is more prominent for financially constrained firms. Consistent with the catering channel, the authors find that the misvaluation-investment nexus is more pronounced in firms with short-horizon investors. By examining the stocks’ long-term performance of misvalued firms, via a sorting portfolio procedure, the authors find that undervalued firms outperform and generate higher abnormal returns (Jensen’s alpha) than overvalued firms, suggesting that mispricing-driven investment appear to be short-lived and lead to lower return in the long term.

Corporate decision-makers and governance structures should pay attention to the rationality of the corporate investment decision in the context of equity market misvaluation. Managers who focus on maximizing the stock market value in the short-run at the expense of its long-term performance must give preference to value-creating investment, not driven by an external mechanism such as equity market mispricing. More generally, investors and portfolio managers must take into account the market mispricing process in decision-making. Nonetheless, from the portfolio sorting perspective, decision-makers must act in terms of high governance quality to mitigate suboptimal investment due to stock market mispricing (Jensen, 2005). Finally, equity market overvaluation, leading managers to invest via equity financing in particular, should be a signal to attract investors’ attention to seize the window of opportunity and embark on a short-term portfolio strategy. Such a strategy promises high returns in the short term.

This paper investigates jointly two theoretical channels: equity market timing and catering. The authors propose for the analysis three components of the M/B decomposition to dissociate market misvaluation at the firm and industry level from the fundamental component of market value (growth). This procedure provides a better understanding of the role of firm and industry misvaluation in explaining corporate investments. The authors provide evidence of the equity market misvaluation via a portfolio sorting procedure and a Carhart (1997) four-factor pricing model. The authors examine the effect of misvaluation on both the investment and the financing decisions.

The purpose of this study is firm value management through corporate finance policy design and scenario analysis to maximize the firm value.

The study develops a system dynamics model for an oil firm and incorporates the financial and physical processes to perform the firm valuation. The model is simulated under the current and alternative investment, capital structure and dividend policies of the case firm, assuming different oil and gas price and tax rate scenarios to identify which combination of policies maximizes the firm value.

The simulation results suggest that lowering the volume of investments, increasing the debt ratio and reducing the dividend payments from the current level increases the share price, given increased oil and gas price expectations and lower tax rates. However, the total firm value outperforms with increased investments toward the end of the simulation period. In case of decreased oil and gas price expectations, lower volume of investments, lower debt ratio and lower dividend payments increase the share prices, given lower taxes.

This study entails significance as it provides a comprehensive financial planning model for an oil firm, which incorporates the complex interactions of key financial and physical processes of the firm. The study contributes to debates on corporate finance policies by integrating multiple theories, accounting for accumulation processes and feedback loops and their non-linear interactions. The study proposes the consideration of combined impact of policies for firm value management.

The purpose of this study is to examine the impact of selected corporate governance (CG) variables on the equity value multiple (EVM) of listed firms in Nigeria.

The research used data obtained from 100 firms listed on the Nigerian Stock Exchange (NSE) from 2014 to 2018. A generalized method of moment was used to estimate the relationship, whereas principal component analysis was used to generate composite values of EVMs.

Findings reveal a significant association between board size, board independence, board gender diversity, managerial shareholding, audit committee independence, disclosure of CG information and EVM at a 1% level of significance.

This study was limited to firms that disclosed information on CG and EVMs.

These empirical findings lend support to agency theory, which suggests the use of various CG variables as a way of reducing principal-agent conflicts. It also lends support to resource dependency theory from a gender diversity perspective.

The study is a pioneering effort toward unlocking the relationship between some CG variables and the EVMs, focusing on firms listed on the NSE.

The crude oil market plays a key role in addressing the issue of energy economics. This paper aims to detect the causality relationship between the crude oil market and economy based on the financial system.

This paper used the static and dynamic Hatemi-J Bootstrap Toda–Yamamoto and Diebold–Yilmaz connectedness index. The Hatemi-J Bootstrap Toda-Yamamoto approach allows researchers to use nonstationary data and that method is robust to nonnormal distribution and heteroscedasticity. The Diebold–Yilmaz connectedness index model provides researchers to detect the power of connectedness besides linkage direction. The analyzed period is the span from January 3, 2005 to October 3, 2022.

The results show bidirectional causality in the full sample but unidirectional causality before and after the 2008 financial crisis. During the 2008 financial crisis period and the COVID-19 period, there was a bidirectional and unidirectional causality, respectively. The connectedness approach indicates that the crude oil market affects financial stress through investors’ risk preferences.

The Diebold–Yilmaz spillover index model is based on vector autoregression methods with a stationarity precondition. However, some of the five dimensions that constitute the financial stress index (FSI) are nonstationary in level. Therefore, the authors takes the first difference of the nonstationary data.

The linkage between the crude oil market and the FSI provides useful information for investors and policymakers. For instance, this paper indicates that an investor wanted to forecast future value of the crude oil (financial stress) should consider the current and past values of financial stress (crude oil). Moreover, policymaker should consider the crude oil market (FSI) to make a policy proposal for financial system (crude oil market).

Recently, indicators of economic activity levels (economic policy uncertainty, implied volatility index) have begun to be considered to analyze the relationship between energy and the economy but very little is known in the literature about the leading and lagging roles of data in subsample periods and the linkage channel. The other originality of this research is using the new econometric approaches.

This empirical study’s primary goal is to examine the connection between accounting information and share price for financial companies listed on Jordan’s expanding Amman Stock Exchange (ASE) between 2014 and 2018.

The correlation between accounting data and share price was investigated using multiple regression analysis. In this vein, “pooled ordinary least squares (OLS), fixed effect and random effect” static panel data estimators were used. The OLS model was chosen as the best model after a series of diagnostic tests.

The multiple proxies of accounting information value relevance have a positive and considerable impact on the market value per share, according to panel data research. Comparatively, the authors find proof that among the other accounting data – earnings, dividends and cash flow from operations – book value is statistically the most value-relevant.

This empirical investigation was only conducted in Jordan. Because it is very likely to obtain different results in other nations, the findings cannot be applied to other business environments.

The findings of this paper may highlight the amazing relationship between accounting information and share price for policymakers, regulators and other stakeholders in developing nations, notably in Jordan. This could pave the way for effective accounting disclosures.

Seldom does empirical research on the relationship between accounting data and share prices from publicly traded companies on ASE exist. So, by demonstrating empirical findings from Jordanian companies, this study fills the gap in the existing literature and knowledge.

This study aims to compare the value relevance of accounting numbers prepared under the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards with those produced under the International Financial Reporting Standards (IFRS) for Takaful companies (TC).

The authors assess the value relevance of accounting numbers using the Easton and Harris (1991) and Ohlson (1995) return and price models. They also use 54 insurance companies from 10 developing countries in Asia and the Middle East from 2006 to 2015.

The analysis shows that book value is significantly related to stock price under AAOIFI and IFRS. It also shows that TC adopting AAOIFI accounting standards have a more significant effect on stock price. This suggests that AAOIFI standards are more value relevant than IFRS.

TC and their stakeholders can use the findings to determine which accounting standards (IFRS or AAOIFI) produce the more relevant accounting information. This study is useful for investors that consider Islamic ethical practices to make their investment decisions for the standards-setting bodies that focus on establishing accounting standards for the Takaful industry.

The authors investigate a new aspect of the topic of value relevance. To the best of the authors’ knowledge, they believe this is the first paper examining the value relevance of TC’ accounting information prepared under AAOIFI and IFRS.

The purpose of this study is to investigate if a firm's exchange complexity profile (that is, the linkages between the firm and its environment) influences investor behavior at the negotiation table where a firm valuation is derived.

The authors utilize Qualitative Comparative Analysis (QCA). Specifically, the authors utilize fuzzy-set Qualitative Comparative Analysis (fsQCA), a QCA variant that allows the researcher to assign graduated membership in sets.

When the authors dichotomize their positions as either higher stakes that favor the seller (high capital, low equity, high valuation) or lower stakes that favor the buyer (low capital, high equity, low valuation), and when the authors focus primarily on the equity outcome, the authors find that investors adopt a reductionist stance that adheres to a transaction cost economics logic under conditions of lower stakes and higher complexity as well as higher stakes and lower complexity conditions. The authors interpret this to mean that equity serves as a counter-balancing lever for a firm's exchange complexity configuration.

On a theoretical level, the authors showcase the exchange complexity framework and differentiate its position within the extant frameworks that address a firm's competitive advantage. More generally, the authors note that this framework brings the discipline of micro-economics and the field of strategic management closer together, providing scholars with a new tool enabling research across industries for the portfolio level of analysis.

This case study will allow students to understand and analyse the process for conducting equity valuation by building a three-statement financial model, to understand and apply the workings of discounted cash flow (DCF) valuation methodology and its components, to apply the concepts related to the calculation of the weighted average cost of capital in the determination of discounting rate, to understand the terminal value calculation and assumptions thereof and to analyse the intrinsic valuation for the target company using the traditional multi-stage DCF model for investment decision-making.

In July 2019, Kapil Agarwal, an equity analyst operating out of Mumbai, India, was carefully looking over the financials of Asian Paints, a leading paints company in India. As an equity analyst, Kapil was constantly on the lookout for fundamentally strong but undervalued companies that could create long-term wealth for his equity fund. To decide upon the right valuation of Asian Paints, Kapil conducted fundamental analysis using the DCF method on the basis of available financial information. This case study puts students in an investment analyst role wherein they forecast financial statements and conduct DCF valuation for Asian Paints to discover potentially undervalued stocks for investment decision-making.

This case study is designed for use in an undergraduate or postgraduate programme in business management, particularly in a course on business valuation or investment management or security analysis.

Teaching notes are available for educators only.

CSS 1: Accounting and Finance.

This study aims to investigate how the intangible intensive nature of firms affects the value relevance of earnings and the book value of equity between profit- and loss-reporting firms. The study also examines how firms’ intangible intensity affects the value relevance of R&D outlays between profit- and loss-reporting firms.

An empirical analysis based on Ohlson’s (1995) framework is used. A total of 54,421 firm-year observations of Indian listed firms from financial years 1992–2016 constitute the study sample.

The findings suggest that the difference in the value relevance of earnings and the book value of equity between profit- and loss-reporting firms is more significant in non-intangible intensive firms than in intangible firms. Specifically, earnings are more value relevant in profit-reporting and non-intangible intensive firms, whereas book value of equity is more value relevant in loss-reporting and intangible intensive firms. The results also suggest that the difference in the incremental value relevance of R&D information between profit- and loss-making firms is higher in intangible intensive firms than in non-intangible intensive firms.

The findings of this study can help managers, standard-setters and investors make effective decisions.

This study offers insights into the impact of intangible intensity on the value relevance of aggregated and disaggregated accounting information between profit- and loss-making firms in institutional settings where capitalization of R&D expenditures is allowed.

The purpose of this study is to showcase that the valuation of startups is still considered to be more “art than science”. Moreover, such non-rigorous approaches often lead to valuations, which turn out to be too high, which in turn has become a well-known phenomenon to a broader audience due to shining examples such as We Work. This is reason enough to revisit the important topic of where we stand today with startup valuation procedures and methodologies.

Literature synthesis and exploratory analysis.

While some studies describe sound results about how to assess startups, what the authors found was that many questions remain open or have not been covered at all. This is the reason why the authors needed to apply a substantial amount of reasoning in the analysis of studies, which do not exactly deal with startup companies. The authors provided some interesting impulses for future research.

Based on an original overview of the current state of research about the valuation of startup companies, this paper makes the following principal contribution to both the literature and practice: on the one hand, the authors assess four impact factors on startup values critically; on the other, the authors provide an outlook on promising future research avenues.