Determinants Of Firm Terminal Value: The Perspective Of North American And European Financial Analysts

Company valuation models attempt to estimate the value of a company in two stages: (1) comprising of a period of explicit analysis and (2) based on unlimited production period of cash flows obtained through a mathematical approach of perpetuity, which is the terminal value. In general, these models, whether they belong to the Dividend Discount Model (DDM), the Discount Cash Flow (DCF), or RIM (Residual Income Models) group, discount one attribute (dividends, free cash flow, or results) to a given discount rate. This discount rate, obtained in most cases by the CAPM (Capital asset pricing model) or APT (Arbitrage pricing theory) allows including in the analysis the cost of invested capital based on the risk taking of the attributes. However, one cannot ignore that the second stage of valuation that is usually 53-80% of the company value (Berkman et al., 1998) and is loaded with uncertainties. In this context, particular attention is needed to estimate the value of this portion of the company, under penalty of the assessment producing a high level of error. Mindful of this concern, this study sought to collect the perception of European and North American financial analysts on the key features of the company that they believe contribute most to its value. For this feat, we used a survey with closed answers. From the analysis of 123 valid responses using factor analysis, the authors conclude that there is great importance attached (1) to the life expectancy of the company, (2) to liquidity and operating performance, (3) to innovation and ability to allocate resources to R&D, and (4) to management capacity and capital structure, in determining the value of a company or business in long term. These results contribute to our belief that we can formulate a model for valuating companies and businesses where the results to be obtained in the evaluations are as close as possible to those found in the stock market

Insider sales and the effectiveness of clawback adoptions in mitigating fraud risk

In recent years, firms (and lawmakers) have sought to mitigate the dysfunctional effects of incentive-based executive compensation by adopting clawbacks. However, extant clawbacks (whether firm-initiated or as mandated by the 2010 Dodd-Frank Act) do not go far enough in that they seem to allow executives to retain trading profits linked to sales of their own companies' shares at a time of inflated earnings (Fried and Shilon, 2011). In this paper, we examine the moderating effect of insider sales on the relation between firm-initiated clawback-adoptions and fraud risk. Our results indicate that clawback-adopting firms experience a decrease in fraud risk following adoption relative to non-adopters during the same time period. However, this decrease in fraud risk for the clawback-adopting firms is materially weakened in the presence of insider trading. At this time (July 2014), the SEC is still working on rules for implementing clawbacks (one of nearly half of the rules yet to be completed under Dodd-Frank). Our findings suggest that clawback rules (as and when issued by the SEC) need to address insider sales for clawbacks to be fully effective in mitigating the risk of fraudulent financial reporting.

No evidence for association of ataxia-telangiectasia mutated gene T2119C and C3161G amino acid substitution variants with risk of breast cancer

Background There is evidence that certain mutations in the double-strand break repair pathway ataxia-telangiectasia mutated gene act in a dominant-negative manner to increase the risk of breast cancer. There are also some reports to suggest that the amino acid substitution variants T2119C Ser707Pro and C3161G Pro1054Arg may be associated with breast cancer risk. We investigate the breast cancer risk associated with these two nonconservative amino acid substitution variants using a large Australian population-based case–control study. Methods The polymorphisms were genotyped in more than 1300 cases and 600 controls using 5' exonuclease assays. Case–control analyses and genotype distributions were compared by logistic regression. Results The 2119C variant was rare, occurring at frequencies of 1.4 and 1.3% in cases and controls, respectively (P = 0.8). There was no difference in genotype distribution between cases and controls (P = 0.8), and the TC genotype was not associated with increased risk of breast cancer (adjusted odds ratio = 1.08, 95% confidence interval = 0.59–1.97, P = 0.8). Similarly, the 3161G variant was no more common in cases than in controls (2.9% versus 2.2%, P = 0.2), there was no difference in genotype distribution between cases and controls (P = 0.1), and the CG genotype was not associated with an increased risk of breast cancer (adjusted odds ratio = 1.30, 95% confidence interval = 0.85–1.98, P = 0.2). This lack of evidence for an association persisted within groups defined by the family history of breast cancer or by age. Conclusion The 2119C and 3161G amino acid substitution variants are not associated with moderate or high risks of breast cancer in Australian women.