Showing papers on "Embedded value published in 1997"
Posted Content•
TL;DR: In this article, the authors developed and tested an option-style valuation model, whose main prediction is that equity value is a convex function of both earnings and book value, where the function depends on the relative values of earnings and Book value.
Abstract: This paper develops and tests an option-style valuation model, whose main prediction is that equity value is a convex function of both earnings and book value, where the function depends on the relative values of earnings and book value. Earnings provides a measure of how the firm's resources are currently used. Book value provides a measure of the value of the firm's resources, independent of how the resources are currently used. When the ratio earnings/book value is high, the firm is likely to continue its current way of using resources, and earnings is the more important determinant of equity value. When earnings/book value is low, the firm is more likely to exercise the option to adapt its resources to a superior alternative use, and book value becomes the more important determinant of equity value. Evidence from a variety of empirical specifications is consistent with the convexity prediction.
677 citations
Book•
1 Aug 1997
TL;DR: In this article, the authors present a set of performance measures for value management, including compensation strategy, value creation, and value-based decision-making, and why management for value makes a difference.
Abstract: Managing for Value Makes a Difference.Value Creation.Why Manage for Value? Investor Expections and Strategy.what is Value Management? Value-Based Decision Making.Performance Measures.Compensation Strategy.Implementing Value-Based Management.Why Value Management Fails.Summary.Endnotes.Index.
116 citations
TL;DR: In this paper, the authors present the results from their research and thinking surrounding the differences and similarities between the two VBM frameworks and present the result from their analysis of the four factors that determine value.
Abstract: What we use today to follow up a company's profitability and value creation is inconsistent with the capital market's mechanism, and what the market considers determines value--it is therefore imprecise and irrelevant. The accounting used will not any longer be a sufficient provider of financial information. Companies will experience a demand for more precise tools, both when it comes to metrics and the tool's ingredients (relevance) due to the increasing activity among shareholders/investors. The relevance in financial management must be dramatically improved. Companies must now identify the Value Based Management (VBM) concept that will best initiate a higher degree of Shareholder Value awareness in the company. A true VBM framework is consistent with the market's mechanism and our four factors that, according to the capital markets, determine value. The metric must be precise and relevant. Not random and irrelevant as accounting is today as a decision base. This paper deals with the two VBM frameworks Economic Value Added (EVA?) and Cash Value Added (CVA?). Many things are being said about the two frameworks. I will in this paper present the result from my research and thinking surrounding the differences and similarities between them. The Cash Value Added framework discussed in this paper refers to the concept developed by Erik Ottosson and Fredrik Weissenrieder. The Economic Value Added framework discussed in this paper refers to the concept developed by Bennett Stewart.
92 citations
TL;DR: In this paper, the authors embed the well known dividend valuation model of Borch in financial theory and show that this policy is a special case of the class of Markov decision processes with stationary dividend policies and that some alternative dividend policies may be more realistic.
TL;DR: The authors showed that the willingness to pay per dollar of coverage is greater for lines of insurance with longer resolution periods consistent with a positive informational value of insurance, and that other financial assets may also have differential informational value.
Abstract: The purchase of insurance provides a potentially finer informational partition over the distribution of post-loss resolution wealth that may allow favorable adaptation of intermediate consumption, investment, or other decisions. Such a positive informational value does not require consumer risk aversion. Lines of insurance with longer resolution periods should impact relatively more decisions and have higher informational value. Under standard assumptions on preferences, in the absence of informational value, risk premiums paid for insurance by risk averse consumers should not increase as the loss resolution period increases. Empirical tests using data from the property-liability insurance market suggest that the willingness to pay per dollar of coverage (as measured by relative market demand across lines of insurance) is greater for lines of insurance with longer resolution periods consistent with a positive informational value of insurance. The results suggest that other financial assets may also have differential informational value.