Classical single-factor comparable company valuation (CCV) like e.g. valuation using the price-earnings ratio is associated with several shortcomings. The two most important are the non-applicability of negative values in the basis of reference and the high requirements to the qualitative characteristics of comparable companies. This paper develops a multi-factor CCV model based on substance an...

In this paper, we challenge the view that foreign investors lead firms to adopt a shortterm orientation and forgo long-term investment. Using a comprehensive sample of publicly listed firms in 30 countries over the 2001-2010 period, we find instead that greater foreign institutional ownership fosters long-term investment in tangible, intangible, and human capital. Foreign institutional presence...

Article history: Received 9 May 2011 Received in revised form 24 October 2011 Accepted 1 November 2011 Available online 9 November 2011 We survey 290 LATAM firms on capital budgeting, cost of capital and capital structure issues. We analyze the results and compare them to those of other studies. We interpret differences according to special features characterizing both emerging markets and SME....

This paper examines a firm’s investment intensity and timing decisions using a real options approach. The firm is endowed with a perpetual option to invest in a project at any time by incurring an irreversible investment cost at that instant. The amount of the irreversible investment cost determines the intensity of investment with decreasing returns to scale. The project generates a stream of ...

We analyze the investment decision of a firm that has an option to complete an investment project either in one lump or in two smaller parts at distinct points in time. The firm faces a trade-off between the cost savings that arise when the project is completed at once and the additional flexibility that arises when the firm is able to respond to resolving uncertainty by choosing optimal timing...

This paper investigates the interactions between preemptive competition and leverage. We find that the second mover always leaves the duopoly market before the first mover, although the leader may exit before the follower’s entry. We also see the leverage effects of debt financing increasing firm values and accelerating investment, even in the presence of preemptive competition. In addition to ...

We present an equilibrium model of a moral-hazard economy with one firm and financial markets, where a stock and bonds are traded. We show that it is optimal for the principal to forbid the agent to trade the stock; that the second-best interest rate is lower than the first-best interest rate; and that the second-best equity premium can be higher or lower than the first best equity premium. We ...

The Net Present Value maximizing model has a respectable ancestry and is considered by most scholars a theoretically sound decision model. In real-life applications, decision makers use the NPV rule, but apply a subjectively determined hurdle rate, as opposed to the “correct” opportunity cost of capital. According to a heuristics-and-biases-program approach, this implies that the hurdle-rate ru...

We show that regulators’ price-setting, rate base, and allowed rate of return decisions are inextricably linked. Once regulators switch from traditional rate of return regulation, the irreversibility of much infrastructure investment significantly alters the results of the usual approach to price-setting, as exemplified by Marshall, Yawitz and Greenberg (1981). In particular, the practice of ‘o...

We analyze capital allocation in a conglomerate where divisional managers with uncertain abilities compete for promotion to CEO. A manager can sometimes gain by unobservably adding variance to divisional performance. Capital rationing can limit this distortion, increase productive efficiency, and allow the owner to make more accurate promotion decisions. Firms for which CEO talent is more impor...