Equity Valuation Based on Management Earnings Forecasts : An Evaluation of Gao et al. (2019)

ケイエイシャ　ノ　ヨソウ　リエキ　ニ　モトヅク　キギョウ　カチ　ヒョウカ　Gao　et　al　2019　モデル　ノ　ケンショウ

Higashikawa, Kazumasa

経営者予想

評価誤差

株価説明能力

インプライド資本コスト

equity valuation

management forecasts

valuation error

ability to explain stock price

implied cost of capital

This study addresses whether the hybrid equity valuation model proposed by Gao et al. (2019) is applicable for evaluating Japanese firms, using management earnings forecasts. Three aspects on the quality of value estimates are examined: the degree to which the estimated equity value approximates the actual stock price; the bias, which is the difference between the actual and estimated equity value; the absolute valuation error measured by the absolute value of the bias; the coefficient of determination from regressing stock prices on estimated equity values. As a result, the hybrid equity valuation model yields more favorable outcomes than the existing valuation models such as Ohlson and Juettner-Nauroth’s (2005) model and residual income model, as well as simpler methods using price/earnings ratio or price/book value ratio in all respects suggested above. Specifically, the results pertaining to bias are even improved from those of Gao et al. (2019). In addition, this study estimates the implied cost of capital by solving each valuation model in terms of discount rate, and investigates how this implied cost of capital is correlated with various risk indicators. The implied cost of capital from the hybrid valuation model better reflects potential risk factors than Ohlson and Juettner-Nauroth’s (2005) model, but the association is weak compared to residual income valuation model. In particular, the hybrid valuation model most strongly captures risks related to scale. The results of this study demonstrate the useful role of hybrid equity valuation model in the Japanese capital market.