Implied terminal values in equity valuation.

摘要

One essential issue in the practical implementation of the Edwards-Bell-Ohlson model (the EBO model) as a valuation approach is the determination of terminal value. This thesis studies the role of expected abnormal earnings in forming implied terminal value estimates for U.S. corporations over the period 1958–1996.; Building on the EBO model, I empirically investigate: (1) the relationship between finite-horizon forecasted abnormal earnings and implied terminal value; (2) the association between earnings process attributes and implied terminal value estimates; and (3) the economic determinants of implied terminal value.; Using a four-year forecast horizon, I find that over a 37-year time span the magnitude of implied terminal value is on average 18 percent of firm value. The extension of the forecast window does not improve the explanatory power of the EBO model. The evidence supports a positive association between implied terminal value and the abnormal earnings over the forecast horizon.; Measuring abnormal profitability as the difference between firm return on equity and the median economy accounting return, the empirical results indicate that earnings process attributes are associated with implied terminal value, although the association is weak. In addition, the evidence suggests that the expectation of persistence in long term economic prospects intrinsic to intangible-intensive firms is reflected in implied terminal value estimates.; Finally, incorporating some selected accounting fundamental signals, I find that R&D intensity, advertising intensity, capital intensity, labor force and industry factor are important in explaining the cross-sectional variation in implied terminal value for a four-year forecast horizon.