Advances in Firm Valuation

On Friday, November 4th, 2016, the UCSC Center for Analytical Finance (CAFIN) held an afternoon workshop on advances in firm valuation. The goal of the workshop was to bring together researchers doing cutting edge theoretical and empirical analysis of how the actions of firms and the workings of financial markets interact to determine the market value of firms. Other researchers and graduate students also participated in the meeting. The research papers presented provided new insights into how firms conduct risk management, what kinds of anomalies exist and persist in stock price returns, and how news and information feed into financial market behavior. Ultimately, these findings have implications for how practitioners within firms and in financial markets should make their decisions.

Workshop participants included Amilcar Menichini, Assistant Professor of Finance at the Naval Postgraduate School Graduate School of Business and Public Policy, Scott Cederburg, Assistant Professor of Finance at the University of Arizona Eller College of Management, Yuri Tserlukevich, Associate Professor of Finance at Arizona State University W. P. Carey School of Business, Eric Aldrich, Assistant Professor of Economics at UC Santa Cruz, Joseph Engelberg, Associate Professor of Finance and Accounting at UC San Diego Rady School of Management, Timothy McQuade, Assistant Professor of Finance at Stanford University Stanford Graduate School of Business, Daniel Chi, Assistant Professor of Finance at the University of Nevada Las Vegas Lee Business School, Chenyue Hu, Assistant Professor of Economics at UC Santa Cruz, Jun Liu, Professor of Finance and Accounting at UC San Diego Rady School of Management, and Nirvikar Singh, Distinguished Professor of Economics at UC Santa Cruz and Director of CAFIN.

The presentations described current innovations and challenges in the calculation of stock prices and returns. The scholarly research explained new methods for estimating the fundamental value of a firm, the role of the real options and hedging policy regarding firm value, the observed exacerbation of well-known stock return anomalies during corporate news events, the relation between the cash flow volatility of a firm and its valuation multiple (i.e., market value over book value) as the firm takes advantage of its growth opportunities over time, and the effect of information asymmetry on the firm’s cost of capital and expected stock return.

Overall, the workshop succeeded in gathering a significant group of professors working on different aspects of corporate valuation, generated positive discussions among participants about the new results presented by the researchers, and pointed the way toward future research as well as practical implications for financial strategies within firms and among financial market participants.