Real activities manipulation and firm valuation

Mergers and market valuation: real options approach

This paper investigates the connection between market valuation anda type of the merger (stock, cash) using real options setup. I solveexplicitly for the timing and terms of cash mergers in two deferent settingsto demonstrate that cash mergers generally occur at low marketvaluations, whereas stock mergers that may be observed at both low andhigh valuations; the result holds with some dierences ...

Using Real-Options Valuation Methods for a Biotechnology Firm∗

Many firms in the biotechnology industry have significant valuations despite having no product revenue because their products are in early stages of development. In the past ten to fifteen years investors have bid up the stock prices of firms showing promise of developing a blockbuster drug. Using the decision-tree and binomial-lattice methods we compare the value of a biotechnology firm to the...

Earnings management through real activities manipulation

I find evidence consistent with managers manipulating real activities to avoid reporting annual losses. Specifically, I find evidence suggesting price discounts to temporarily increase sales, overproduction to report lower cost of goods sold, and reduction of discretionary expenditures to improve reported margins. Cross-sectional analysis reveals that these activities are less prevalent in the ...

Agency Problems, Firm Valuation, and Capital Structure

This paper studies the optimal contracting problem in a general cashow setup, and offers a framework to quantitatively assess the impact of agency problems. A closed form solution is obtained in the square-root mean-reverting cash ow process. In the geometric Brownian cashow setup, we embed the agency problem into Leland (1994), and nd that the debt-overhang problem lowers the optimal leverage....

Corporate Governance and Firm Valuation in Colombia