Accounting mechanism for information signals about the imposition of sanctions in valuation of a company

Andrei S. Galkin (), Ilya N. Gurov () and Sergey S. Studnikov ()
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Andrei S. Galkin: Lomonosov Moscow State University
Ilya N. Gurov: Lomonosov Moscow State University
Sergey S. Studnikov: Lomonosov Moscow State University

Economic Consultant, 2020, vol. 29, issue 1, 57-64

Abstract: Investors have to review regularly their forecasts and stock value estimates taking into consideration the imposition of sanctions against Russian companies. Due to the presence of behavioral effects, as well as to the incorrect accounting of incoming information, the risk of obtaining inaccurate stock value estimates increases. In this regard, a mechanism should be developed for adequate update of stock value estimates upon receipt of new information signals about the imposition of sanctions. The study is based on such methods as analysis, synthesis, the longitudinal method, as well as the method of discounted cash flows. The study is based on the dynamics of financial indicators of stock returns of the 40 most marketable Russian companies. A mechanism is proposed for accounting the informational signals about sanctions, which makes it possible to avoid behavioral effects and update adequately the intrinsic stock value estimates upon receipt of new information on the imposition of sanctions. This mechanism makes it possible to consider both changes in expectations regarding cash flows and changes in the cost of capital for companies. At the same time, the research in this field should be continued in order to develop a methodology for equity capital valuation adjustment that will be instrumental in consideration of variance in bias and emergence of the so-called “thick tails” in the distribution of stock returns under receipt of information signals on the imposition of sanctions.

Keywords: sanctions; stock value estimates; intrinsic stock value estimation (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2020
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