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The market value of SMEs: a comparative study between private and listed firms in alternative stock markets

Author

Listed:
  • Leslie Rodríguez-Valencia

    (PhD Program in Economics and Finance, Universidad Autónoma de Madrid)

  • Prosper Lamothe-Fernández

    (Universidad Autónoma de Madrid)

  • David Alaminos

    (Universitat de Barcelona)

Abstract

This study aims to compare the market value of private firms and publicly listed small and medium-sized firms (SMEs) in alternative stock markets through a private discount approach with estimates of value based on discounted cash flow projections and along with a comparable multiples approach. The valuation methodology applied in this study yielded a final sample that included 232 observations between public and private companies in the Spanish market. To calculate the discount, we apply the different approaches of discounted cash flow and multiples, such as valuation, earnings, book value, and revenue. Our results conclude there is no private discount, instead, the outcomes of this article suggest a premium over public firms for some ratios. The negative private company discounts mean a premium and, on the other hand, some multiples suggest a discount according to the method of valuation. This paper proves private discounts resulted does not have any comparable value within the same country although all firms in Spain use the same currency. We value the discounted cash flows of our forecasts using a discount rate based on the Capital Asset Pricing Model (CAPM), so our study can also be viewed as a test sensitivity of CAPM-based approaches to equity risk premium, terminal value, and growth rate. Furthermore, we compare historical transaction multiples of privately held companies with transaction multiples of similar publicly held firms.

Suggested Citation

  • Leslie Rodríguez-Valencia & Prosper Lamothe-Fernández & David Alaminos, 2023. "The market value of SMEs: a comparative study between private and listed firms in alternative stock markets," Annals of Finance, Springer, vol. 19(1), pages 95-117, March.
    • Handle: RePEc:kap:annfin:v:19:y:2023:i:1:d:10.1007_s10436-022-00420-z
    DOI: 10.1007/s10436-022-00420-z
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    More about this item

    Keywords

    Firm value; Valuation multiples; Private discount; Financial valuation; Alternative stock markets;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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