Terminal values for firms with growth opportunities: explaining valuation and IPO price behavior

Tom W. Miller

Studies in Economics and Finance, 2018, vol. 35, issue 2, 244-272

Abstract: Purpose - The purpose of this paper is to use fundamental models incorporating structural relationships within the firm in a terminal value model for the second stage of a two-stage valuation model utilized to estimate the value of a company. Design/methodology/approach - The innovation is that growth options are identified within the structural relationships and a model capturing the value of the optionality is incorporated in the second stage of the two-stage valuation model. Findings - Significant outcomes are that terminal value is shown to be a large portion of a company’s total value and the price behavior for initial public offerings produced by the model is consistent with the result of empirical studies. Originality/value - This paper explicitly incorporates growth options in the second stage of a two-stage valuation model for the firm.

Keywords: Valuation; Growth options; Growth opportunities; IPO pricing; Terminal value; G12; G31 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-03-2016-0078

DOI: 10.1108/SEF-03-2016-0078

Access Statistics for this article

Studies in Economics and Finance is currently edited by Prof Niklas Wagner

More articles in Studies in Economics and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().