An evaluation of the Balanced Scorecard in equity valuation - The case of exchange ratio in the M&As of Taiwan's financial industry

摘要

Purpose - To examine the value relevance of the Balanced Scorecard (BSC) for equity valuation. Design/methodology/approach - The investigations are based on the empirical relationships between a set of BSC indicators and the exchange ratios for a sample of 32 mergers and acquisitions (M&As) of 14 financial holding companies. Data sources are collected from machine-readable database, annual financial reports, industry reports and professional magazines. The study period covers years 2000-2002. Findings - First, the BSC indicators explain as high as 90 percent of the variations of the exchange ratios. Consistent with the spirit of BSC, non-financial performance measures play an important role in the valuation of financial institutions, incrementally improving about 40 percent of explanatory power. Second, empirical evidence shows that acquiring firms outperform the acquired firms and target firms outperform the non-target firms in terms of BSC measures. Research limitations/implications - The small sample size and the limited set of the BSC indicators may constrain the applicability of the results to other industries and time periods. Practical implications - The empirical results provide a concrete and practical framework for the valuation of intangibles and the application of the BSC in M&As. Originality/value - The study examines the BSC as a framework for the valuation of intangibles. The empirical results support the usefulness of the BSC in equity valuation and further corroborate a number of extant theories in the M&A literature.