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How the Equity Terminal Value Influences the Value of the Firm?

Author

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  • Rojo-Ramírez Alfonso A.

    (Department of Economics and Business, Universidad de Almeria, Carretera de Sacramento s/n. La Cañada de San Urbano, Almeria, Spain)

  • Martínez-Romero Maria J.

    (Department of Economics and Business, Universidad de Almeria, Carretera de Sacramento s/n. La Cañada de San Urbano, Almeria, Spain)

  • Mariño-Garrido Teresa

    (Department of Financial Economics and Accounting, University of Vigo. Avenida de Madrid, 60, 36204, Vigo, Spain)

Abstract

The discounted cash flow model (DCFM) views the intrinsic value of common stock as the present value of its expected future cash flows. This paper analyses whether the equity terminal value (EqTV) of the firm calculated by fundamentals is appreciated by the market. It also studies the impact of variations in EqTV and the extent to which the market perceives these variations. Using a sample of 62 Spanish listed companies, this paper shows that EqTV and its variations are positively and significantly correlated with EqTV assigned by the market and its corresponding variations. It therefore corroborates the validity and relevance of the valuation model.

Suggested Citation

  • Rojo-Ramírez Alfonso A. & Martínez-Romero Maria J. & Mariño-Garrido Teresa, 2018. "How the Equity Terminal Value Influences the Value of the Firm?," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 13(1), pages 1-14, February.
    • Handle: RePEc:bpj:jbvela:v:13:y:2018:i:1:p:14:n:2
    DOI: 10.1515/jbvela-2017-0010
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