Terminal values for firms with growth opportunities: explaining valuation and IPO price behavior
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 14 June 2018
Issue publication date: 20 June 2018
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
Citation
Miller, T.W. (2018), "Terminal values for firms with growth opportunities: explaining valuation and IPO price behavior", Studies in Economics and Finance, Vol. 35 No. 2, pp. 244-272. https://doi.org/10.1108/SEF-03-2016-0078
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited