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Valuation: The State of the Art


  • Stephen Penman

    () (Columbia University
    Segesta Advisors AG)


Abstract There is a pervasive skepticism about formal valuation models, so much so that practitioners often discard them, preferring rough-cut methods such as pricing on the basis of comparables or simple P/E ratios. This paper provides a critique of standard valuation models, identifying what is being captured (and what is not being captured) in these models. The paper then strives to develop an agenda towards more robust valuation. It stresses three points. First, any valuation must be in accord with the well-established theory of finance. However, second, the valuation must also be practical. Both are important wedges in driving a solution. Third, valuation is a matter of accounting; a valuation model is only as good as the accounting that it involves. The last point is the basis for a critique of IFRS accounting.

Suggested Citation

  • Stephen Penman, 2016. "Valuation: The State of the Art," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 17(1), pages 3-23, April.
  • Handle: RePEc:spr:schmbr:v:17:y:2016:i:1:d:10.1007_s41464-016-0002-y
    DOI: 10.1007/s41464-016-0002-y

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    References listed on IDEAS

    1. Mark Rubinstein, 1976. "The Valuation of Uncertain Income Streams and the Pricing of Options," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 407-425, Autumn.
    2. Roberto Di Pietra & Stefano Zambon & Stephen Penman & Lorenzo Neri, 2012. "Book Review / Accounting for Value," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2012(1), pages 139-142.
    3. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
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