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Business valuation inspired by the Austrian school

Author

Listed:
  • Michael Olbrich

    (IWP - Institut für Wirtschaftsprüfung (Universität des Saarlandes - Saarland University))

  • Tobias Quill

    (IWP - Institut für Wirtschaftsprüfung (Universität des Saarlandes - Saarland University))

  • David J. Rapp

    (IWP - Institut für Wirtschaftsprüfung (Universität des Saarlandes - Saarland University))

Abstract

The significant failure rates observed in mergers and acquisitions (M&A) indicate structural deficiencies in business transactions. This paper identifies serious weaknesses in common valuation methods that play a key role in poor transaction practice. Common valuation methods are in particular discounted cash flow (DCF) methods. DCF methods are usually based on neo-classical theories that assume the existence of a perfect and complete capital market. As will be demonstrated, the underlying theoretical patchwork is contradictory and lacks utility. Therefore, utilizing DCF methods to value a business and deduce economic decisions from such a valuation is decision-making built on sand. Following a normative-deductive methodology, this paper seeks an alternative theoretical concept to build a business valuation theory on solid ground. Such an alternative is found in the Austrian School of thought. The resulting valuation concept, subjective business valuation theory, is based on the theory of marginal utility proposed by Gossen, which was rediscovered and refined by the scholars of the early Austrian School. Contrary to highly restrictive neo-classical valuation, subjective business valuation approaches reality and is therefore well-suited for practical implementation.

Suggested Citation

  • Michael Olbrich & Tobias Quill & David J. Rapp, 2015. "Business valuation inspired by the Austrian school," Post-Print hal-02396880, HAL.
    • Handle: RePEc:hal:journl:hal-02396880
    DOI: 10.1515/jbvela-2014-0001
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    Citations

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    Cited by:

    1. Lewin Peter, 2017. "Capital Valuation, What is it and Why does it Matter? Insights from Austrian Capital Theory," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 12(s1), pages 1-19, July.
    2. Bagus, Philipp & Howden, David, 2016. "Central Bank Balance Sheet Analysis," MPRA Paper 79801, University Library of Munich, Germany.
    3. Michael Olbrich & David J. Rapp & Florian Follert, 2022. "Eugen Schmalenbach, Austrian economics, and German business economics," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 35(2), pages 205-233, June.
    4. Michael Olbrich & David J. Rapp & Florian Follert, 2022. "Eugen Schmalenbach, Austrian economics, and German business economics," Post-Print hal-02891111, HAL.
    5. Tobias Quill, 2020. "Valuation Techniques Under Construction—About the Dissemination of the CAPM in German Judicial Valuation," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 72(2), pages 299-341, April.
    6. Christian Toll & Olaf Kintzel, 2019. "A nonlinear state marginal price vector model for the task of business valuation. A case study: The dimensioning of IT-service companies under nonlinear synergy effects," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 27(4), pages 1079-1105, December.

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