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Evaluation of Key Parameters Used by Financial Analysts to Value Companies in Poland

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  • Dariusz Zarzecki

Abstract

Purpose: The purpose of this article is to review the most important research on the role of financial analysts and to assess the validity of key parameters used to value companies in Poland. Design/Methodology/Approach: The literature review addresses major studies conducted both globally and in Poland on the role of financial analysts and valuation errors. In addition, a study was conducted on the correctness and consistency of 42 valuations relating to 15 companies listed on the Warsaw Stock Exchange prepared by financial analysts representing three brokerage houses. The results of this research were compared with earlier studies conducted by the author and other authors on the Polish capital market at the beginning of the current century. Findings: The significant deficiencies in key parameters used by financial analysts in Poland over the years include: Lack of clear indication on how the risk-free rate was determined; Subjective determination of the Beta index; No source or justification provided for the risk premium used; Inconsistencies in applying the risk-free rate, Beta coefficient, and risk premium across valuations of the same companies over short timeframes; Variability in risk-free rates and risk premiums in different valuations by the same brokerage firms simultaneously; Absence of justification for changes in parameters in subsequent valuations of the same company. Despite a notable unification of income valuation methodologies in the past 8-10 years, with reduced variations in key DCF parameters among brokerage firms, it's challenging to determine if this standardization resulted solely from improved analytical practices. It may also stem from analysts mimicking the methods of their peers to align with market benchmarks. Typically, methodological standards are set by the largest and most established brokerage houses. Originality/value: This study is one of the few dedicated to assessing the determination and accuracy of key parameters used by financial analysts in DCF valuations in Poland.

Suggested Citation

  • Dariusz Zarzecki, 2024. "Evaluation of Key Parameters Used by Financial Analysts to Value Companies in Poland," European Research Studies Journal, European Research Studies Journal, vol. 0(Special A), pages 839-856.
    • Handle: RePEc:ers:journl:v:xxvii:y:2024:i:speciala:p:839-856
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    References listed on IDEAS

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    1. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
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    More about this item

    Keywords

    Financial analysts; valuation; business valuation; valuation errors.;
    All these keywords.

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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