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Valuing high technology growth firms

Author

Listed:
  • Soenke Sievers

    (University of Cologne)

  • Jan Klobucnik

    (CGS, University of Cologne)

Abstract

For the valuation of fast growing innovative firms Schwartz and Moon (2000, 2001) develop a fundamentals based valuation model where key parameters, such as revenues and expenses, follow stochastic processes. Guided by economic theory, this paper tests this model on a sample of around 30,000 technology firm quarter observations from 1992 to 2009 using realized accounting data and benchmark it against the traditional Enterprise Value-Sales Multiple. Our results show that the Schwartz-Moon model is on average nearly as accurate as the multiple approach, while it is even more accurate in certain industries such as pharmaceutical and computer firms. Most importantly, the Schwartz-Moon model shows the ability to indicate severe market over- or undervaluation.

Suggested Citation

  • Soenke Sievers & Jan Klobucnik, 2011. "Valuing high technology growth firms," Cologne Graduate School Working Paper Series 02-07, Cologne Graduate School in Management, Economics and Social Sciences.
    • Handle: RePEc:cgr:cgsser:02-07
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    References listed on IDEAS

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    More about this item

    Keywords

    Schwartz-Moon model; market mispricing; empirical test; company valuation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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