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Valuing high technology growth firms

Soenke Sievers and Jan Klobucnik
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Soenke Sievers: University of Cologne
Jan Klobucnik: CGS, University of Cologne

No 02-07, Cologne Graduate School Working Paper Series from Cologne Graduate School in Management, Economics and Social Sciences

Abstract: For the valuation of fast growing innovative firms Schwartz and Moon (2000, 2001) develop a fundamentals based valuation model where key parameters, such as revenues and expenses, follow stochastic processes. Guided by economic theory, this paper tests this model on a sample of around 30,000 technology firm quarter observations from 1992 to 2009 using realized accounting data and benchmark it against the traditional Enterprise Value-Sales Multiple. Our results show that the Schwartz-Moon model is on average nearly as accurate as the multiple approach, while it is even more accurate in certain industries such as pharmaceutical and computer firms. Most importantly, the Schwartz-Moon model shows the ability to indicate severe market over- or undervaluation.

Keywords: Schwartz-Moon model; market mispricing; empirical test; company valuation (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 G33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent
Date: 2011-11-07
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