Comparing market-based and financial statement-based stock valuation models: Implications for growth expectations and differences across time periods.

摘要

The value of a share of common stock in a publicly-listed company should be equal to the present value of the future cash flows the company is forecast to produce, and ultimately pay out to its stockholders. Expectations for these flows may incorporate information that goes beyond current earnings discounted into perpetuity as per the Dividend Discount Model (DDM). By comparing a market-based valuation model with a financial statement-based valuation model this paper seeks to find evidence of information embedded in market valuations that may not be captured in financial statement-based valuations. The analysis endeavors first to identify a component of stock value that exists incremental to the DDM valuation which is based on current earnings discounted into perpetuity. This incremental component is then examined to determine the factors creating it, with those factors defined as the Franchise Factor (ability to produce returns on equity in excess of the cost of equity capital) and the Growth Factor (ability to produce growth in earnings in future periods off of the current earnings base). These results are analyzed to see what they may reveal about market growth expectations. They are further analyzed by different time periods and a first attempt is made to begin some analysis by industry.;The empirical results produced in this dissertation are generally consistent with and supportive of various aspects of finance theory and other prior empirical research, while building on that prior research because this model is different from others in that it is not returns-based and it compares market valuations to financial statement-based valuations. In particular, the empirical results here lend support to some aspects of the Leibowitz and Kogelman theoretical model that examines P/E ratios and their version of a Franchise Factor.