Dividend Discount Model Research Articles

Analisis Penilaian Atas Harga Wajar Saham Menggunakan Metode Discounted Cash Flow (DCF) dan Dividend Discount Model (DDM) Untuk Pengambilan Keputusan Investasi (Studi pada Indeks LQ-45 Periode 2018-2022)

This study aims to analyze a stock fundamentally in the LQ-45 Index for the 2018-2022 period using absolute methods, namely the Dividend Discount Model (DDM) and Discounted Cash Flow (DCF) methods so that it can be seen whether the stock condition is undervalued, overvalued, or fairvalued and this will also provide an investment decision recommendation for investors. This type of research is quantitative with a descriptive approach. The main object of research is companies included in the LQ-45 index for the period 2018-2022. This research sampling technique uses purposive sampling so as to produce as many as eight companies in accordance with certain criteria. The results of research using the Dividend Discount Model (DDM) method show that some stocks in undervalued conditions are in ASII, BBNI, BMRI, ICBP, INDF, and TLKM stocks. Then for stocks in overvalued conditions there are ANTM and HMSP shares. In using the Discounted Cash Flow (DCF) method, stocks in undervalued conditions are ANTM, ASII, BMRI, and INDF shares. Then for stocks in overvalued conditions are BBNI, HMSP, ICBP, and TLKM. The results of determining the most accurate method between Discounted Cash Flow (DCF) and Dividend Discount Model (DDM) where the results of measurements using Root Mean Square Error (RMSE) show that the Dividend Discount Model (DDM) method is more accurate in this study.

Tobin’s q Revisited: A Theoretical and Empirical Framework for Accurate Business Valuation.

Objective - This study revisits Tobin’s q by offering a theoretically derived empirical model based on the Ohlson framework, aiming to correct the misapplications found in existing literature. Methodology/Technique – While Tobin’s q has been extensively used as a measure of firm value, the traditional empirical models often assume a linear relationship with variables such as growth, leverage, and profitability. Finding – This paper demonstrates that even in a basic model, such as the Gordon growth model, this linearity does not hold. In fact, this paper shows that a linear relationship will hold only under restricted conditions and only with certain explanatory variables. Novelty – By introducing a theoretically sound equation for Tobin’s q, this study highlights the limitations of current empirical methods and provides a new perspective for firm valuation research. The results contribute significantly to improving the accuracy of business valuation models, particularly in settings with varying capital structures and market dynamics. Type of Paper: Theoretical JEL Classification: G12, G19. Keywords: Tobin’s q; Ohlson model; Firm value; Valuation Reference to this paper should be referred to as follows: Tharavanij, P. (2024). Tobin’s q Revisited: A Theoretical and Empirical Framework for Accurate Business Valuation, GATR-Global J. Bus. Soc. Sci. Review, 12(3), 125–133. https://doi.org/10.35609/gjbssr.2024.12.3(3)

Stock Valuation In Retail Trade Companies Listed On The Idx: Residual Income And Dividend Discount Model

Stock Valuation In Retail Trade Companies Listed On The Idx: Residual Income And Dividend Discount Model

Are milk quota prices a rational investment? Modeling quotas as financial assets

AbstractOur objective in this paper is to examine the growth of the price of farm milk quotas in Canada, to shed light on their patterns of growth within the last 15 years. Our quota price model is based on the Gordon growth model, supplemented by some important characteristics of the milk quota market. Our explanatory variables include the quota rental price, interest rate, and expectations of both price and quantity growth, all for the province of Alberta over the 2009–2023 time period. Our economic model of quota prices performs well by giving results with the predicted signs for all variables in our model and high levels of statistical significance except for expectations of quantity allocations when entered separately. The model has two variants, one with the expectation of growth in quota rents and the other with the expectation of growth in the quota asset price. Econometric issues related to time series problems are dealt with. The model allows calculation of policy risk, which shows an interesting pattern over this time period.

Dividend based risk measures: A Markov chain approach

Computations of risk measures in the context of the dividend valuation model is a crucial aspect to deal with when investors decide to buy a share of common stock. This is achieved by using a Markov chain model of growth-dividend evolution, imposing an assumption that controls the growth of the dividend process and in turn allows for the computation of the moments of the price process and the fulfillment of a set of transversality conditions which allows avoiding the presence of speculative bubbles in the market. The probability distribution of the fundamental value of the stock is recovered by solving a moment problem, based on the solution of a maximum-entropy approach from which it is possible to compute classical risk measures based on these fundamental variables. The methodology is applied to real dividend data from the S&P 500 index. Results show that our model provides complete information about the fundamental price not limited to its expectation.

ARIMA Model, Discounted Cash Flow Analysis, and Dividend Discount Model for Five Technology Stocks' Pricing and Trading Strategy

This study examines the ability of three widely used financial and econometric models-the Autoregressive Integrated Moving Average (ARIMA), the Discounted Cash Flow (DCF), and the Dividend Discount Model (DDM), to accurately forecast the stock prices of five well-known technological companies. Every theoretical framework offers a unique point of view. DDM places an emphasis on the value of expected future dividends. Collecting historical information on each stock and then applying that information to the relevant models in order to make projections about future stock values was an integral part of the process. In order to evaluate the accuracy, dependability, and applicability of each model in regard to the technology equity, a head-to-head comparison was carried out. Based on the preliminary findings, it appears that while ARIMA can provide valuable insights for price changes in the short term, DCF and DDM can provide a more comprehensive view of the long-term intrinsic worth of a company's stock. However, the effectiveness of each model differed among the several technological stocks that were considered, underscoring the relevance of selecting a model that is adapted to the particular qualities and dynamics of a specific stock as well as the industry in which it operates.

Comparison of The Dividend Discount Model and The Discounted Cash Flow Model Valuation of Stock Kweichow Moutai

Stock valuation is an essential element of investment analysis, aiding investors in gauging a company's true worth. This essay conducts a literature review and a thorough demonstration of the calculation process, focusing on the Discounted Cash Flow (DCF) Model and the Dividend Discount Model (DDM), as key tools in stock valuation. The research examines the valuation of Kweichow Moutai Co., Ltd., a prominent Chinese company in the beverage industry. The results yielded significant disparities from the market price, with the DCF model indicating potential overvaluation by approximately -33.39%, while the DDM model pointed to an even greater overvaluation of about -77.94%. These findings underscore the complexity of stock valuation and the need for a comprehensive approach. Investors should not solely rely on market sentiment but should combine these models with extensive research and a diversified portfolio strategy.

Investor Investment Strategy from Discounted Dividend Model Perspective

Stocks, as a security in economic life and widely chosen by investors. The decision-making process of whether to allocate capital to stocks or not necessitates the employment of analytical methodologies, prominently including the assessment. This study employed, the 2-stage Dividend Discount Model, a classic model in stock price evaluations. Mitsubishi Heavy Industries, Ltd. (MHI) was selected as an example, on the basis of fundamental financial data and fundamental market information, the case study will determine the intrinsic value of MHI's shares. The analysis proffers that MHIs stock exhibits an undervaluation, warranting investors to consider a strategic position of acquisition and retention until equity valuations converge or above the intrinsic worth. In addition, the study simultaneously discusses the issues that need to be taken into account when using the model and analyses the problems with the model itself. The research also emphasizes the need to consider these findings alongside other factors, and additional valuation models for more accurate investment decision-making.

Yield rate in the Warsaw office market and its determinants. Further studies

This article is a continuation and extension of a previous study which, to the best of the author’s knowledge, was the first scientific attempt to identify determinants of the yield rate in the Warsaw office market. The paper is based on the Gordon growth model. In this approach, the yield rate of buildings offering office space to let is a function of the risk-free interest rate, the risk premium and a constant rate of growth of generated cash flows. In the article, five different elements of the risk premium were identified (term structure, alternative investments’, market (country) specific, monetary and local office market capacity risk premium). The Error Correction Model was formulated based on quarterly time series data from 2007Q1 to 2021Q2. Most investors in the office market in Poland are financial institutions representing foreign capital. Therefore, the innovation of the paper and its main goal was to define which factors play key roles in determining yield rates in the Warsaw office space market – national or regional/international. However, the selected group of Polish determinants were indicated as having prevailing an impact on the yield rate in the Warsaw office market than the corresponding determinants from the European Monetary Union and the USA. Based on the model, the lead-lag, as well as asymmetric relations, were depicted. Moreover, the use of dummy variables checks, the Chow test and the Markov switching model indicated the presence of structural breaks and the existence of the two regimes in the model.

Fundamental Stock Assessment Using the Dividend Discount Model and Price Earning Ratio Method for Investment Decisions in the Banking Sector Listed on the Indonesian Stock Exchange

This study was conducted to determine the fair value of shares of banking sector companies for the period 2022. We evaluated the stocks of five companies listed on the Indonesia Stock Exchange based on two approaches: the dividend discount model and the price-to-earnings ratio . The survey results of five companies show that two companies are undervalued and three companies are overvalued. If an investor is undervalued, he can decide to buy the stock, while an overvalued investor can sell the stock.

Loblaw Companies Limiteds Basic Financial Analysis and Calculation Display

For a company, financial analysis can help the company analyze its financing, investment, risk management, comparison with competitors and other issues to help company decision-makers make correct decisions. For the financial market, financial analysis can help investors understand the basic characteristics, current situation and future prospects of their target investment companies and help improve social and economic stability and development. This article is mainly based on a financial analysis of the current state of Loblaw Companies Limited (hereinafter referred to as Loblaw) in 2023. The research purpose of this article is to conduct an in-depth study of Loblaw by explaining the meaning and conceptual relationship of data collection, calculations and results, so that the public can have a more comprehensive understanding of the companys financial status in 2023. This paper uses literature analysis and data analysis research methods to mainly explore Loblaws risks, financing costs, current capital plans and capital structure. The data analysis models used include linear regression model, dividend discount model (DDM), capital asset pricing model (CAPM), weighted average cost of capital (WACC), net present value model (NPV). The data used for calculation comes from authoritative websites such as Yahoo Finance, Bank of Canada, and Loblaws official website. The results of the study found that Loblaw has a dominant position in the Canadian retail market. Loblaw is one company that relies more on debt financing. Its financing costs are lower than the industry average. Its capital structure has been very stable in recent years. The market has full confidence in Loblaw.

PARAMETER ESTIMATION METHODS OF REQUIRED RATE OF RETURN ON STOCK

In this study, we introduce new estimation methods for the required rate of returns on equity of private and public companies using the stochastic dividend discount model (DDM). To estimate the required rate of return on equity, we use the maximum likelihood method, the Bayesian method, and the Kalman filtering. We apply the model to a set of firms from the S&P 500 index using historical dividend and price data over a 32-year period. Overall, the suggested methods can be used to estimate the required rate of returns.

Bankruptcy Risk in Discounted Cash Flow Equity Valuation

We investigate the importance of bankruptcy risk in discounted cash flow (DCF) equity valuation. Our analyses first show how bankruptcy risk is incorporated in DCF valuation, where investment risk is captured by cash flow certainty equivalents. Within this general setting, we find that bankruptcy risk can be captured by discounting factors incorporating period-specific bankruptcy probabilities, allowing the numerators in a DCF valuation model to follow a binary random walk. Elaborating a model of this kind, we assess the value of the equity holders’ limited liability right (the equity holders’ right to hand over the firm to its creditors if bankruptcy occurs). Two valuation models commonly used in academic research and professional practice—the Dividend Discount Model (DDM) and the Residual Income Valuation (RIV) model—are addressed specifically. Our analyses show that bankruptcy probabilities are important for the estimation of the value drivers in both models. Even if bankruptcy probabilities are as low as 0.02, equity values might be severely exaggerated if bankruptcy risk is ignored in DDM or RIV. In particular, this holds for firms expected to have high future growth (conditioned on firm survival). For the RIV model to properly capture bankruptcy risk, we identify “bankruptcy event accounting principles” and an additional term that must be included in the model. We also show that bankruptcy risk under certain conditions can be handled through a specific calibration of the discounting rate/-s in all DCF models, allowing the value drivers—i.e., future dividends or residual income—to be forecasted conditioned on firm survival.

VALUASI SAHAM UNTUK MENENTUKAN FAIR PRICE DALAM PENGAMBILAN KEPUTUSAN INVESTASI

Valuation means measuring or identifying the value of the benefits of asset is the root of the stock valuation. Stock valuation is important in making investment decisions because it provides a deep understanding of the intrinsic value of a stock. Through stock valuation research, investors can identify whether a company’s current stock price is below, equal or of above its intrinsic value. By knowing the fair value or fair price of a stock, investors can make more informed decisions about when to buy and sell the stock. This research focuses on PT Bank Negara Indonesia (Persero) Tbk. using the 2016-2021 time period. This study uses a quantitative approach to the methods used in calculating stock valuations, namely Capital Asset Pricing Model (CAPM), Discounted Cash Flow (DCF), and Dividend Discount Model (DDM). The result of the study show that the fair value of shares at BBNI based on calculations is Rp.7.506. Individual Return (Ri) of 0,92183 is greater than the Expected Return (E(Ri)) of 0,5368 which means that BBNI shares are in an undervalued position.

Assessment of ESG Integration in Corporate Valuation in GCC Region

The concept of Sustainability has been gaining steam in the past few decades in the boardrooms of corporations and regulators in order to decisively address the ecological and social impacts of operations carried by thousands of organizations around the globe. The ESG Score has been established in order to uniformly assess the considerations and effectiveness of initiatives taken by organizations to improve their ecological outlook, or internal relations and interactions among various levels of staff throughout the organizational structure. This paper aims to assess any relationship that may arise between the valuation and capital structure of an organization through assessing the ESG Score, as well as its individual components, namely Environmental, Social and Governance components, upon the Cost of Equity, Cost of Debt, Return on Equity, and Dividend Payout Ratio. The methodology used to observe any correlation between these variables is to conduct OLS regressions between the ESG Score, as well as each of its individual components, with the variables relating to the different methods of valuation, namely the Discounted Cash Flow Model and the Dividend Discount Model. A positive causality was observed between the environmental score and both free cash flow and profitability. Furthermore, we noted a strong association between the overall ESG score and the dividend payout ratio. Further observations were derived from juxtapositions between indices of publicly traded companies ranked based on their ESG performance and companies ranked by their equity, in the markets situated in the United Arab Emirates and the United States. Comparisons were also made between indices assessing the performance of conventional Bonds and Green Bonds.

An Evaluation of the Dividend Discount Model and its Extensions

The valuation of the stock is one of the most fundamental financial concepts, whereas the Dividend Discount Model is the basis of the stock valuation. The model state that the value of the stock is the sum of the present value of the infinite future dividend. It is, however, impossible for Humans to forecast future dividend accurately. Therefore, the assumption of the future dividend and the extension of the dividend discount model are required. In this paper, the assumption, advantages, and limitations of the general Dividend discount model and its extension, including the Fix dividend discount model, Gordon growth model, Two-stage model, Three-phase model, H-model, Geometric and additive model, and the modified Geometric and additive model, are introduced in this paper, which can be used as a reference for the investors for them to make their financial decision or for the scholars for their researches.

IPO valuation in an emerging market – a study in Iran

PurposeThis study aims to highlight the accuracy, performance and selection of the IPO valuation methods in the Islamic Republic of Iran’s emerging market.Design/methodology/approachThe authors performed accurate ex ante evaluations based on a pre-IPO data set obtained from valuation institutions. This study considered valuation methods through correlations, Mann–Whitney U tests and regression analysis, using a sample of 83 IPOs from January 2017 to March 2021.FindingsThe authors found that the dividend discount model (DDM) was the most popular in Iran. Even after controlling firm characteristics and market circumstances, the IPO price was highly correlated to pre-IPO reports’ estimates. The results showed that firms’ age, size and profitability affected the selection of valuation methods. The valuers did not apply forward P/E in a volatile market. Firm size affected the weights assigned to free cash flow to the firm, and the valuers considered the asset-in-place intensity to determine the weights of DDM, P/E and net asset value, and they mainly used the P/E to value old firms. Finally, this study estimated the accuracy of the pre-IPO report at 61% and found the highest accuracy to be associated with DDM.Originality/valueIPO pricing in emerging markets constitutes a more significant dilemma than in developed markets. This paper provides empirical evidence of IPO pricing focusing on valuation methods used in the context of an emerging market – the Islamic Republic of Iran.

Indonesian Digital Bank Stock Valuation: Case Study of Bank Jago in 2022

In 2019, in the midst of the early stage of the digital banking industry in Indonesia Bank Arto underwent a transition and rebranded as Bank Jago, a digital bank. As a result of Bank Jago’s transition from a traditional commercial bank into a digital bank, the company’s stock reached an all-time high share price of Rp 19,000 per share in January 2022. This was the highest share price the company had ever achieved. The public’s excitement eventually subsided, however, and this resulted in a decline in the price of the company’s shares. The price per share of Bank Jago was recorded at Rp 4,200 in November of 2022, which was 77% lower than the price recorded in the beginning of 2022. This research will analyze the financial performance of Bank Jago through the utilization of financial ratio analysis, and to determine the intrinsic value of Bank Jago through the utilization of absolute valuation using the Dividend Discount Model as well as the competitiveness and environment of the Indonesian digital banking industry using PESTEL and Porter Five Forces. From the Porter Five Forces, Indonesian digital banking industry indicates a high level of competitiveness, whilst the industry itself in Indonesia through the PESTEL analysis indicates that it will continue to grow due to the level of support from the political and government factors. According to the analysis of financial ratios, Bank Jago’s profitability has increased significantly over the past three years, as indicated by the rapid growth rate of the NIM, ROE, and ROA ratios since the time of its transformation. With a ratio of 145.86%, Bank Jago displayed a level of liquidity that was unsatisfactory. According to the projections using Dividend Discount Model, Bank Jago’s intrinsic value is currently undervalued by -23%.

Auditor industry specialization and cost of equity on earnings management: the moderating role of institutional ownership

PurposeThis study aims to explore the moderating role of institutional ownership in the impact of auditor industry specialization and the cost of equity on earnings management in Tehran Stock Exchange.Design/methodology/approachA total number of 198 firms were assessed in this study from 2014 to 2021. In this study, both accrual earning management (AEM) and real earnings management (REM) have been included. The industry-adjusted earnings price ratio and Gordon Growth Model were used for the cost of equity capital. In addition, auditor’s within-industry market share was used as a proxy for auditor industry specialization.FindingsThe results showed that institutional ownership positively moderates the impact of auditor industry specialization on AEM/REM. Furthermore, institutional ownership positively moderates the impact of cost of equity on AEM/REM. Hypothesis testing based on a robust regression and t + 1 test were also used for the results.Originality/valuePrevious studies have reported mixed results of this empirical question whether institutional ownership actually monitors managers and control earning management, considering the auditor industry specialization and the cost of equity. To the best of authors’ knowledge, this is a pioneering study to fill the existing gap. This study would not only benefit companies to manage financial and strategic decisions more efficiently but also help national and international society apply effective mechanisms to assist companies in decreasing earning management and increasing the firm performance, and try to push the market into a favorable direction.

Dividend Discount Model Study and Example Analysis

There is an urgent need for the Chinese market to conduct analytical research on the actual value of stocks rationally, and the issue of determining whether a store has investment value has become a hot topic. The dividend discounting model proposed by Williams is a method to calculate and study the intrinsic value of common stocks using the tip discounting method. With the help of this model, investors can make more accurate, objective, and rational judgments with the support of a large amount of data. In this paper, I will present basic information about the dividend discount model and analyze the advantages and disadvantages of the model and each derived formula in terms of applicability and limitations. To make my research more convincing, the paper will take the typical popular Internet companies iFLTTEK. Col.Ltd. and Tencent as examples. I will try to value these companies based on the dividend discount model with detailed data from the financial statements in a case study.