Comparing the Reliability of Dividend Discount, Discounted Free Cash Flow and Abnormal Earnings Valuation Models in Hi-Tech and Manufacturing Industry
The objective of the article is to empirically compare the reliability of the equity value estimates, for Hi-Tech Industry and Manufacturing Industry companies, derived from three theoretically equivalent valuation models: the dividend discount model (DIV), the discounted free cash flow model (FCF) and the discounted abnormal earnings model (AE).The ex-post data are used to analyze the reliability of the value estimates for firms from both industries.The comparison of the two industries estimates reliability is based on the estimation accuracy which is defined as actual price less predicted price scaled by actual price and the estimation explain ability which is defined as the ability of the estimates in explaining the company share price variations.The results from research show that all the models underestimate the share price.In the cross-sectional analysis, the results reveal that the AE model pricing errors are smaller than those from the other two models.Further analyses on each models attributes show the importance of book value in the valuation which could be one of the explanations for the AE models superiority and the difference across the industries.This finding conclude that the AE model may outperform the DIV and FCF models when book value misevaluations are less severe than forecast errors on future payoff, discount rates and growth rate.
Dividend discount model (DIV) Discounted free cash flow model (FCF) Discounted abnormal earnings model (AE)
CUI Yiwen XING Huiru
Wuhan Yangtze Business University, Wuhan, P.R.China, 430065
国际会议
The Thirteenth International Symposium-Management Science & Engineering(第十三届管理科学与工程国际学术会议
青岛
英文
107-114
2014-07-18（万方平台首次上网日期，不代表论文的发表时间）