Can a combination of financial variables adequately explain firms' market value?

by Mallett, Gregory C., D.B.A., CAPELLA UNIVERSITY, 2011, 93 pages; 3454137

Abstract:

This study identified which financial variables, i.e., operating income (EBIT), weighted average cost of capital (WACC), ratio of intangible assets to total assets (goodwill), and ratio of net income to common equity (E/E), provided the greatest explanatory power when predicting firms’ market value added (MVA). The latter variables were analyzed with regression equations, i.e., MVA models. The research sample consisted of data for 10 fiscal years, 1999–2008, from the S&P 100. Empirical evidence demonstrated that the reduced model, containing EBIT, WACC, and E/E, provided the greatest explanatory power, based on the adjusted R2 statistic, and that the WACC variable was the most influential of all. However, for fiscal year 2005, the EBIT variable had the greatest influence, based on Pearson’s correlation coefficient.

AdvisersFrank P. DeCaro; Zhenhu Jin
SchoolCAPELLA UNIVERSITY
Source TypeDissertation
SubjectsManagement; Statistics; Finance
Publication Number3454137

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