Pub Date : 2022-12-07DOI: 10.1142/s2737566822500025
K. Ohnishi
This paper investigates a Cournot game model with a nonlinear demand function where a profit-maximizing firm competes against a socially concerned firm. The timing of the game is as follows. In stage one, each firm non-cooperatively decides whether to offer a wage-rise contract policy as a strategic commitment device. In stage two, after observing the rival’s decision in stage one, each firm non-cooperatively chooses its actual output. The paper presents the equilibrium solutions of the model.
{"title":"Wage-rise contract and mixed Cournot duopoly competition with profit-maximizing and socially concerned firms","authors":"K. Ohnishi","doi":"10.1142/s2737566822500025","DOIUrl":"https://doi.org/10.1142/s2737566822500025","url":null,"abstract":"This paper investigates a Cournot game model with a nonlinear demand function where a profit-maximizing firm competes against a socially concerned firm. The timing of the game is as follows. In stage one, each firm non-cooperatively decides whether to offer a wage-rise contract policy as a strategic commitment device. In stage two, after observing the rival’s decision in stage one, each firm non-cooperatively chooses its actual output. The paper presents the equilibrium solutions of the model.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"42 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2022-12-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81383551","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-02-01DOI: 10.1515/jbvela-2022-0020
Ramesh Menon, Leena James
Abstract Startups play a substantial role in the economic growth of a nation, by introducing new technologies, ground-breaking innovation, creating jobs, etc. A couple of decades back, it was extremely difficult to start a business, but today new businesses pop up every day, all around the world. Recognizing the importance of a startup, governments across the globe are doing their best to provide an atmosphere where startups can bloom. Despite its importance and all the support, the startup failure rate is at 90%; about 10% of startups fail in the first year and 70% fail in two to five years. The startup boom saw the emergence of alternative sources of funding like Venture Capitalist, Angel Investors, etc. These investors (Venture Capitalist, Angel Investors, etc.) played a crucial role in startup success by providing easy access to funds which is a critical and scarce resource for any founder. Traditionally business success is linked with sustainable profitability but in the startup world most used method to define success is valuation. Based on CB Insights research, as of January 2022, there are more than 900 unicorns (startup with a valuation of over $1 billion) around the world and of these unicorns less than 10% are profitable. It’s difficult to explain/comprehend how startups’ which are neither profitable nor foresee profitability in near future are valued higher than traditional business with stable profitability. Current valuation methods have impacted the startup ecosystem. Today, founders start their business with exit in mind, the focus of founders is on growth/scale rather than profitability. There is a school of thought that believes that such valuations will soon result in the bursting of the startup bubble just like the dotcom bubble seen in late 1990s. The focus of this paper is to investigate the techniques used by investors for startup valuation and how these techniques are impacting the startup ecosystem and its founders. The paper looks at all stages of the investment cycle, from seed to IPO or takeover and understands the process of valuation at each stage and how it impacts all stakeholders in the ecosystem.
{"title":"Understanding Startup Valuation and its Impact on Startup Ecosystem","authors":"Ramesh Menon, Leena James","doi":"10.1515/jbvela-2022-0020","DOIUrl":"https://doi.org/10.1515/jbvela-2022-0020","url":null,"abstract":"Abstract Startups play a substantial role in the economic growth of a nation, by introducing new technologies, ground-breaking innovation, creating jobs, etc. A couple of decades back, it was extremely difficult to start a business, but today new businesses pop up every day, all around the world. Recognizing the importance of a startup, governments across the globe are doing their best to provide an atmosphere where startups can bloom. Despite its importance and all the support, the startup failure rate is at 90%; about 10% of startups fail in the first year and 70% fail in two to five years. The startup boom saw the emergence of alternative sources of funding like Venture Capitalist, Angel Investors, etc. These investors (Venture Capitalist, Angel Investors, etc.) played a crucial role in startup success by providing easy access to funds which is a critical and scarce resource for any founder. Traditionally business success is linked with sustainable profitability but in the startup world most used method to define success is valuation. Based on CB Insights research, as of January 2022, there are more than 900 unicorns (startup with a valuation of over $1 billion) around the world and of these unicorns less than 10% are profitable. It’s difficult to explain/comprehend how startups’ which are neither profitable nor foresee profitability in near future are valued higher than traditional business with stable profitability. Current valuation methods have impacted the startup ecosystem. Today, founders start their business with exit in mind, the focus of founders is on growth/scale rather than profitability. There is a school of thought that believes that such valuations will soon result in the bursting of the startup bubble just like the dotcom bubble seen in late 1990s. The focus of this paper is to investigate the techniques used by investors for startup valuation and how these techniques are impacting the startup ecosystem and its founders. The paper looks at all stages of the investment cycle, from seed to IPO or takeover and understands the process of valuation at each stage and how it impacts all stakeholders in the ecosystem.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"17 1","pages":"101 - 114"},"PeriodicalIF":0.0,"publicationDate":"2022-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41972585","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-02-01DOI: 10.1515/jbvela-2021-0020
Stefan Otto Grbenic
Abstract Valuation analysts adjust prices of private firm’s stock downward from their fully marketable counterparts, reflecting the private firms’ lower level of marketability. This discount for lack of marketability can be substantial in magnitude. This study examines the performance (according to bias and accuracy employing estimation error methodology) of seven popular option pricing models in generating discount estimates to coincide with empirically observed discount benchmarks (based on the pre-IPO methodology) in European Union member countries over the period 2004 until 2018. The results allow for the general conclusion that some option pricing models are superior in most settings, coinciding with their individual benefits and deficiencies. The detailed analysis indicates that (i) the superiority of these option pricing models holds for a wide range of periods of assumed restricted marketability, (ii) segmenting discount benchmarks according to their size improves the performance of the option pricing models, (iii) segmenting discount benchmarks according to both, the underlying volatility of stock returns and dividend yields, does not improve the performance of the option pricing models, and (iv) IPO underperformance has no material impact on relative option pricing model’s performance.
{"title":"The Performance of Option Pricing Models Estimating the Marketability Discount in a Pre-IPO Real-World Data Setting: Evidence from Europe","authors":"Stefan Otto Grbenic","doi":"10.1515/jbvela-2021-0020","DOIUrl":"https://doi.org/10.1515/jbvela-2021-0020","url":null,"abstract":"Abstract Valuation analysts adjust prices of private firm’s stock downward from their fully marketable counterparts, reflecting the private firms’ lower level of marketability. This discount for lack of marketability can be substantial in magnitude. This study examines the performance (according to bias and accuracy employing estimation error methodology) of seven popular option pricing models in generating discount estimates to coincide with empirically observed discount benchmarks (based on the pre-IPO methodology) in European Union member countries over the period 2004 until 2018. The results allow for the general conclusion that some option pricing models are superior in most settings, coinciding with their individual benefits and deficiencies. The detailed analysis indicates that (i) the superiority of these option pricing models holds for a wide range of periods of assumed restricted marketability, (ii) segmenting discount benchmarks according to their size improves the performance of the option pricing models, (iii) segmenting discount benchmarks according to both, the underlying volatility of stock returns and dividend yields, does not improve the performance of the option pricing models, and (iv) IPO underperformance has no material impact on relative option pricing model’s performance.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"17 1","pages":"1 - 37"},"PeriodicalIF":0.0,"publicationDate":"2022-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43489321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-02-01DOI: 10.1515/jbvela-2022-0009
James L. Canessa, G. Jarrell
Abstract The discounted cash flow (“DCF”) model is widely used for valuing corporate assets. But valuable assets that do not generate cash flows will be missed by the DCF approach. Because cash interest income is generally not included in the projected net cash flows of operating assets, the value of cash is regarded as a non-operating asset whose value must be added to the DCF enterprise value. Unfortunately, it has become standard practice on Wall Street and for the courts to exclude some amount of cash from non-operating assets on the basis that it will be used to finance the immediate operations of the business. The exclusion of so-called “operating” or “working-capital” cash is widely accepted as necessary and is recommended in virtually all valuation texts and treatises. We disagree and show that all cash should generally be added as a non-operating asset, except in unique circumstances where “wasting cash” is not earning a fair market return. We explain that excluding operating cash is correct only if either the interest income on cash is included in the net cash flows projections used to compute DCF value, or if the specific (near-term) operating expenses that will be covered by operating cash are excluded from the net cash flow projections. In either case, the full economic benefits of owning operating cash are fully reflected in the DCF enterprise value of the company, causing the DCF value to be higher by the exact amount of operating cash that is excluded. We call this the symmetry principle of operating cash. In practice, neither condition is normally met, so that all cash should generally be treated as a non-operating asset.
{"title":"The Proper Treatment of Cash Holdings in DCF Valuation Theory and Practice","authors":"James L. Canessa, G. Jarrell","doi":"10.1515/jbvela-2022-0009","DOIUrl":"https://doi.org/10.1515/jbvela-2022-0009","url":null,"abstract":"Abstract The discounted cash flow (“DCF”) model is widely used for valuing corporate assets. But valuable assets that do not generate cash flows will be missed by the DCF approach. Because cash interest income is generally not included in the projected net cash flows of operating assets, the value of cash is regarded as a non-operating asset whose value must be added to the DCF enterprise value. Unfortunately, it has become standard practice on Wall Street and for the courts to exclude some amount of cash from non-operating assets on the basis that it will be used to finance the immediate operations of the business. The exclusion of so-called “operating” or “working-capital” cash is widely accepted as necessary and is recommended in virtually all valuation texts and treatises. We disagree and show that all cash should generally be added as a non-operating asset, except in unique circumstances where “wasting cash” is not earning a fair market return. We explain that excluding operating cash is correct only if either the interest income on cash is included in the net cash flows projections used to compute DCF value, or if the specific (near-term) operating expenses that will be covered by operating cash are excluded from the net cash flow projections. In either case, the full economic benefits of owning operating cash are fully reflected in the DCF enterprise value of the company, causing the DCF value to be higher by the exact amount of operating cash that is excluded. We call this the symmetry principle of operating cash. In practice, neither condition is normally met, so that all cash should generally be treated as a non-operating asset.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"17 1","pages":"39 - 64"},"PeriodicalIF":0.0,"publicationDate":"2022-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"66926248","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-02-01DOI: 10.1515/jbvela-2021-0023
M. Drabek
Abstract This article focuses on the topic of the relative valuation from the perspective of non-publicly traded companies and the determination of industry multiples allowing the subsequent application of this approach to specific industries. I chose the Czech brewing industry as the target industry, represented by the 50 most important entities (covering more than 99% of the industry’s turnover). Due to the fact that no market value data are available for this type of company, I first used an income valuation approach – the discounted cash flow (DCF) method to assess the market value of each company in the sample. I then quantified valuation multiples of P/E, EV/EBIT, EV/EBITDA, P/S, EV/S, P/BV, and EV/IC for each company, from which I determined industry statistics. I verified their suitability for use in the relative valuation approach and compared them with the results of existing studies on the most commonly used valuation approaches in the Czech Republic. Furthermore, I compared my own calculations of industry multiples for non-publicly traded companies with available data on industry multiples of publicly-traded companies in the brewing industry across Europe. The results of the comparison show that these multiples are on average lower for non-publicly traded companies than for listed companies.
{"title":"Relative Valuation of Private Held Companies: Valuation Multiples in the Czech Brewing Industry","authors":"M. Drabek","doi":"10.1515/jbvela-2021-0023","DOIUrl":"https://doi.org/10.1515/jbvela-2021-0023","url":null,"abstract":"Abstract This article focuses on the topic of the relative valuation from the perspective of non-publicly traded companies and the determination of industry multiples allowing the subsequent application of this approach to specific industries. I chose the Czech brewing industry as the target industry, represented by the 50 most important entities (covering more than 99% of the industry’s turnover). Due to the fact that no market value data are available for this type of company, I first used an income valuation approach – the discounted cash flow (DCF) method to assess the market value of each company in the sample. I then quantified valuation multiples of P/E, EV/EBIT, EV/EBITDA, P/S, EV/S, P/BV, and EV/IC for each company, from which I determined industry statistics. I verified their suitability for use in the relative valuation approach and compared them with the results of existing studies on the most commonly used valuation approaches in the Czech Republic. Furthermore, I compared my own calculations of industry multiples for non-publicly traded companies with available data on industry multiples of publicly-traded companies in the brewing industry across Europe. The results of the comparison show that these multiples are on average lower for non-publicly traded companies than for listed companies.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"17 1","pages":"65 - 100"},"PeriodicalIF":0.0,"publicationDate":"2022-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42234858","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-01DOI: 10.1142/s2737566821500080
Bello Ayuba
The purpose of this study is to examine how the changing Nigerian marketing environment affects consumer behavior with emphasis on the role of government and the criticisms that follow. A total of 323 questionnaires were distributed to the respondents cutting across consumers of various categories of products in the Nigerian manufacturing sector including employees and government officials of business regulatory agencies in the 36 States of the six geo-political zones of the Nigerian Federation including Abuja, the Federal Capital Territory. The study adopted simple random sampling technique to select the sample of the study. The study was analyzed using descriptive statistics, Chi-square and multiple linear regression analysis and qualitative descriptive method to help in achieving the research objectives. The study revealed that changes brought about by the environment are caused by several macro-environmental factors such as economic, technological, socio-cultural, legal/political and international factors which have significant effect on consumers’ buying characteristics (social, cultural, personal and psychological) which subsequently affect consumers’ satisfaction and purchase decision. Economic and legal/political variables were found to exhibit the most significant impact while the technological variable exhibits the least impact.
{"title":"THE CHANGING NIGERIAN MARKETING ENVIRONMENT: AN ASSESSMENT OF CONSUMER BEHAVIOR, GOVERNMENT ROLE AND CRITICISMS","authors":"Bello Ayuba","doi":"10.1142/s2737566821500080","DOIUrl":"https://doi.org/10.1142/s2737566821500080","url":null,"abstract":"The purpose of this study is to examine how the changing Nigerian marketing environment affects consumer behavior with emphasis on the role of government and the criticisms that follow. A total of 323 questionnaires were distributed to the respondents cutting across consumers of various categories of products in the Nigerian manufacturing sector including employees and government officials of business regulatory agencies in the 36 States of the six geo-political zones of the Nigerian Federation including Abuja, the Federal Capital Territory. The study adopted simple random sampling technique to select the sample of the study. The study was analyzed using descriptive statistics, Chi-square and multiple linear regression analysis and qualitative descriptive method to help in achieving the research objectives. The study revealed that changes brought about by the environment are caused by several macro-environmental factors such as economic, technological, socio-cultural, legal/political and international factors which have significant effect on consumers’ buying characteristics (social, cultural, personal and psychological) which subsequently affect consumers’ satisfaction and purchase decision. Economic and legal/political variables were found to exhibit the most significant impact while the technological variable exhibits the least impact.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"11 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76438114","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-01DOI: 10.1142/s2737566821500109
M. R. Khan, Sumaiya Binte Ekram Esha
Purpose: This study attempts to investigate the change in career preference of business undergraduates of Bangladesh due to the ongoing COVID-19 pandemic. Design/Methodology: This study is an observational study, where 620 respondents’ data are collected and analyzed. Percentages of career preference changes and reasons for career preference changes of business undergraduates due to the ongoing COVID-19 pandemic are analyzed based on Dhaka, Bangladesh. The paired sample [Formula: see text]-test is used to define the significance of this study. Findings: Most of the preferred fields by the respondents in the coming years are MNCs and the banking sector. However, because of the major consequences of COVID-19, graduates plan to change their careers. More than average, all respondents are planning to change their career preferences to government services and business. The main reasons for the career preference of business graduates before COVID-19 were financial benefits and compensation, social status, and good career opportunities. Now they want a safe and secure source of income for their families and for themselves. Practical Implications: The results of the study can be useful for both academics in their quest to guide students in changes in career preferences and for governments and practitioners to understand the future career preferences of business graduates.
{"title":"CHANGES IN CAREER PREFERENCES DURING COVID-19 PANDEMIC: A STUDY OF BUSINESS UNDERGRADUATE STUDENTS IN BANGLADESH","authors":"M. R. Khan, Sumaiya Binte Ekram Esha","doi":"10.1142/s2737566821500109","DOIUrl":"https://doi.org/10.1142/s2737566821500109","url":null,"abstract":"Purpose: This study attempts to investigate the change in career preference of business undergraduates of Bangladesh due to the ongoing COVID-19 pandemic. Design/Methodology: This study is an observational study, where 620 respondents’ data are collected and analyzed. Percentages of career preference changes and reasons for career preference changes of business undergraduates due to the ongoing COVID-19 pandemic are analyzed based on Dhaka, Bangladesh. The paired sample [Formula: see text]-test is used to define the significance of this study. Findings: Most of the preferred fields by the respondents in the coming years are MNCs and the banking sector. However, because of the major consequences of COVID-19, graduates plan to change their careers. More than average, all respondents are planning to change their career preferences to government services and business. The main reasons for the career preference of business graduates before COVID-19 were financial benefits and compensation, social status, and good career opportunities. Now they want a safe and secure source of income for their families and for themselves. Practical Implications: The results of the study can be useful for both academics in their quest to guide students in changes in career preferences and for governments and practitioners to understand the future career preferences of business graduates.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"16 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81268262","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-01DOI: 10.1142/s2737566821500079
S. Islam, Nazlida Muhamad
Healthcare improvement relating to basic hospital service attributes is one of the most fundamental driving forces to uplifting in economic and social transition for developing countries in an emerging context. The purpose of this paper is to measure patients’ trio need satisfaction toward doctor service quality (DSQ), nurse caring quality (NCQ), and hospital environment quality (HEQ) and compare the effects of perceived, expected, and service quality gap on patient satisfaction. Multiple regression analysis was used to explain the patient satisfaction. The result shows that the perceived service quality (67.3%) and the service quality gap (50.8%) can better explain patient satisfaction than the expected service quality (3.0%). Both perception and gap model show that DSQ, NCQ, and HEQ are significant predictors of patient satisfaction, where NCQ is the most important dimension in explaining patient satisfaction. This study focuses on patient need satisfaction research by being one of the few empirical studies relating to the most basic hospital service quality attributes, contributing to the development of hospital service quality in a developing context of Bangladesh.
{"title":"PATIENTS’ TRIO NEED SATISFACTION: A GAP ANALYSIS BETWEEN EXPECTATIONS AND PERCEPTIONS","authors":"S. Islam, Nazlida Muhamad","doi":"10.1142/s2737566821500079","DOIUrl":"https://doi.org/10.1142/s2737566821500079","url":null,"abstract":"Healthcare improvement relating to basic hospital service attributes is one of the most fundamental driving forces to uplifting in economic and social transition for developing countries in an emerging context. The purpose of this paper is to measure patients’ trio need satisfaction toward doctor service quality (DSQ), nurse caring quality (NCQ), and hospital environment quality (HEQ) and compare the effects of perceived, expected, and service quality gap on patient satisfaction. Multiple regression analysis was used to explain the patient satisfaction. The result shows that the perceived service quality (67.3%) and the service quality gap (50.8%) can better explain patient satisfaction than the expected service quality (3.0%). Both perception and gap model show that DSQ, NCQ, and HEQ are significant predictors of patient satisfaction, where NCQ is the most important dimension in explaining patient satisfaction. This study focuses on patient need satisfaction research by being one of the few empirical studies relating to the most basic hospital service quality attributes, contributing to the development of hospital service quality in a developing context of Bangladesh.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"23 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75291051","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-01DOI: 10.1142/s2737566821500110
Jibril Ibrahim Yero, Nuhu Abubakar, Aisha Muhamud Hamman, Sani Saidu
This study focuses on a nonlinear approach in assessing the effect of free cash flow and managerial ownership on the agency cost of firms listed under the Consumer and Industrial Goods sector in the Nigerian Stock Exchange (NSE). Based on the extant theories, firms with high free cash flow are more exposed to agency costs. Existing literature however shows that managerial ownership could moderate this tendency. In this study, we argue that the extent to which managerial ownership moderates the effect of free cash flow on firms’ agency costs is dependent upon the level of the ownership, and thus, the moderation effect is not entirely linear. The study therefore empirically investigates whether free cash flow has a significant positive effect on agency costs; whether managerial ownership has a nonlinear effect on free cash flow; and whether the moderating effect of managerial ownership on the association of free cash flow and agency costs is nonlinear (not the same at different levels [Formula: see text]25% and above 25%). We estimate the panel regression using data from 2009 to 2015 to test three main hypotheses. We measured free cash flow using the cash flow approach and adopted the inverse of asset utilization to proxy for agency costs. The findings reveal that while free cash flow linearly and negatively affects agency costs, managerial ownership has a nonlinear effect on free cash flow and on the effect of free cash flow on agency costs. In line with the findings, this study concludes that managerial ownership is not a straight jacket remedy for tacking problems associated with agency costs that results from having excess free cash flow. Further studies should consider other proxies of agency costs.
{"title":"FREE CASH FLOW, MANAGERIAL OWNERSHIP, AND AGENCY COST: A NONLINEAR EVIDENCE FROM NIGERIAN QUOTED CONSUMER AND INDUSTRIAL GOODS FIRMS","authors":"Jibril Ibrahim Yero, Nuhu Abubakar, Aisha Muhamud Hamman, Sani Saidu","doi":"10.1142/s2737566821500110","DOIUrl":"https://doi.org/10.1142/s2737566821500110","url":null,"abstract":"This study focuses on a nonlinear approach in assessing the effect of free cash flow and managerial ownership on the agency cost of firms listed under the Consumer and Industrial Goods sector in the Nigerian Stock Exchange (NSE). Based on the extant theories, firms with high free cash flow are more exposed to agency costs. Existing literature however shows that managerial ownership could moderate this tendency. In this study, we argue that the extent to which managerial ownership moderates the effect of free cash flow on firms’ agency costs is dependent upon the level of the ownership, and thus, the moderation effect is not entirely linear. The study therefore empirically investigates whether free cash flow has a significant positive effect on agency costs; whether managerial ownership has a nonlinear effect on free cash flow; and whether the moderating effect of managerial ownership on the association of free cash flow and agency costs is nonlinear (not the same at different levels [Formula: see text]25% and above 25%). We estimate the panel regression using data from 2009 to 2015 to test three main hypotheses. We measured free cash flow using the cash flow approach and adopted the inverse of asset utilization to proxy for agency costs. The findings reveal that while free cash flow linearly and negatively affects agency costs, managerial ownership has a nonlinear effect on free cash flow and on the effect of free cash flow on agency costs. In line with the findings, this study concludes that managerial ownership is not a straight jacket remedy for tacking problems associated with agency costs that results from having excess free cash flow. Further studies should consider other proxies of agency costs.","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"205 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75754980","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-01DOI: 10.1142/s2737566821990012
{"title":"Author Index Volume 4 (2021)","authors":"","doi":"10.1142/s2737566821990012","DOIUrl":"https://doi.org/10.1142/s2737566821990012","url":null,"abstract":"","PeriodicalId":39482,"journal":{"name":"Journal of Business Valuation and Economic Loss Analysis","volume":"36 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2021-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79976377","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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