Company valuation and the nonlinear state marginal price vector model under agency conflicts

Olaf Kintzel and Christian Toll ()
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Olaf Kintzel: Fernuniversität Hagen
Christian Toll: Fernuniversität Hagen

Central European Journal of Operations Research, 2022, vol. 30, issue 4, No 6, 1279-1305

Abstract: Abstract In the present contribution, the innovative nonlinear state marginal price vector model introduced in Toll and Kintzel (CEJOR 27(4):1079–1105, 2019) (plus Errata herein) is enriched to include budgeting problems under agency conflicts. Under asymmetric information, a company owner as principal can only rely on information transmitted to her from her managers as agents. In the related modeling, it is assumed that slack and capital rationing are optimal. The governing budgeting relations are integrated into a nonlinear framework furnished by a multi-period newsvendor approach and are solved numerically by means of a two-step valuation procedure based on two successive nonlinear convex optimizations. The capital market is assumed to be imperfect. As case study, the M&A-valuation case of a merger of two IT-service companies is considered subjected to optimal combined dimensioning of capacities and budgets under stochastic demand. On balance, by addressing agency conflicts within the well-established nonlinear framework, the practical application field of the valuation procedure is widened.

Keywords: Investment analysis; Company/business valuation; Nonlinear convex programming; Agency conflicts; Asymmetric information; Multi-period newsvendor/newsboy model; IT-service companies (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10100-021-00765-2

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