Embedded value

Abstract: The valuation of an entity is an intricate process leading to the establishment of its market value. A company’s value is created, on one hand, by its assets and liabilities and, on the other hand, by its capacity to generate future economic benefits. In order to evaluate the equity of a company a balance sheet-based valuation method is used, most commonly the adjusted net assets valuation method. The goal of this paper is to present the theoretical background of this method as well as its practical application. We will first analyze the main theoretical issues regarding the corrections that need to be performed in order to transform the book value of assets and liabilities to their market value, afterwards proceeding to an example on how this method is applied to the balance sheet of a company. Finally, we will conclude on the importance of the method for a company’s evaluation process.

Abstract: Purpose This paper aims to examine the capital market effects and predominance of unregulated embedded value (EV) financial reporting in the life insurance industry in foreign domestic markets, and US markets for foreign firms that cross-list in the USA. Design/methodology/approach Recent empirical archival data are analyzed and evaluated to determine the incremental and relative value relevance of an unregulated valuation metric that is disclosed by life insurers. Findings The findings support the proposition that EV is valuable supplemental information in foreign domestic markets, and in US markets for foreign life insurers that cross-list in the USA. Given that International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are engaged in projects to improve accounting standard for insurance companies, and have faced criticism with the existing drafts on this issue, the two institutions ought to consider the valuation relevance of EV disclosures. Moreover, this analysis strongly suggests that financial analysts in the USA should consider EV in valuing life insurers’ stocks. Practical implications The findings discussed in this paper are of special interest to financial reporting policy makers, financial analysts, firm compensation committees and managers, and academics. Originality/value This paper contributes to the extant literature by providing recent evidence that suggests that EV, an unregulated fair value market-driven metric, is more value-relevant than traditional earnings metrics such as earnings and book value. It is the only study that we are cognizant of that critically examines the recent empirical literature on this evolving issue.

Abstract: Purpose: The purpose of this article is to study whether there exists natural relationship between fair value and corporate external market. A series of special phenomenon in the application of fair value arouses our research interests, which present evidences on how competition affects the correlation of fair value information. Design/methodology/approach: this thesis chooses fair value changes gains and losses and calculate the ratio of DFVPSit as the alternative variable of the fair value. In order to effectively inspect the mutual influence between the degree of industry competition and the value relevance of fair value, and reduce the impact of multi-collinearity, we built a regression model on the hypothesis, which supposes that if other conditions are the same, the fair value information has greater value relevance if the degree of the industry competition is greater. To test the hypothesis, we use the comparison of the DFVPSit coefficient absolute value to judge the value relevance of fair value information, and the greater the absolute value is, the higher relevance between the changes in fair value per share profits and losses with the stock prices. Findings: The higher the degree of competition in the industry is, the more fair value information relevance is. Also, there are evidences representing that fair value information often presents negative correlation with the stock price. Originality/value: The main contribution of the article is to show that not only need we make the formulation and implementation of the high quality of fair value accounting standards to suit for both the national conditions and international practice, but also need we further to improve the company's external governance mechanism to promote fair value’s information correlation.

Abstract: This article examines the determinants of economic value added (EVA) in insurance industries. It addresses the key components of EVA, the value drivers that are more important in managing economic value and the combination of these value drivers that best explain EVA as a group. The study covers the life insurance sector in South Africa, specifically focusing on the big five companies: Discovery Holdings, Liberty Holdings, MMI Holdings, Old Mutual plc, and Sanlam Ltd for the period 2004-2014. Variance and principal component analyses are used to identify the main drivers of EVA. Five main drivers were prominent, namely: underwriting, asset management, costs, opportunity cost and strategic investments. The implications of the results for best practice in the insurance industry are discussed.