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We analyze firm-level analyst forecasts during the COVID crisis. First, we describe expectations dynamics about future corporate earnings. Downward revisions have been sharp, mostly focused on 2020, 2021 and 2022, but much less drastic than the lower bound estimated by Gormsen and Koijen (2020). Analyst forecasts do not exhibit evidence of over-reaction: As of mid-May, forecasts over 2020 earnings have progressively been reduced by 16%. Longer-run forecasts, as well as expected “Long-Term Growth” have reacted much less than short-run forecasts, and feature less disagreement. Second, we ask how much discount rate changes explain market dynamics, in an exercise similar to Shiller (1981). Given forecast revisions and price movements, we estimate an implicit discount rate going from 10% in mid-February, to 13% at the end of March, back down to their initial level in mid-May. We then decompose discount rate changes into three factors: changes in unlevered asset risk premium (0%), increased leverage (+1%) and interest rate reduction (-1%). Overall, analyst forecast revisions explain most of the decrease in equity values between January 2020 and mid May 2020, but they do not explain shorter term stock market movements.

This is a study of analysts’ use of accounting information for valuation purposes in a venture capital setting. This setting is characterized in terms of the distinctive scouting and coaching work of venture capital funders, and the unproven and incomplete nature of the ventures and entrepreneurs, which seek funding to scale operations, pivot into new markets, internationalize, or undertake some other kind of fundamental change. Based on interviews with entrepreneurs (project-makers) and venture funders (analysts), a four phase model of valuation is proposed. The model illuminates that, in contrast with common assumptions in the existing literature, accounting is mobilized neither to reveal truth nor constitute knowledge about the objects of investment, but to promise and to care. This paper articulates these two concepts in the context of accounting. Promising is shown to be a means not to implement a predesigned business plan and a budgeted set of activities but to commit to a new and unclear future and agree high and sometimes unrealistic expectations. Caring is shown not to be a means to predict a final fate for the organization, but to give and take, interact and sometimes discipline in order to determine what is necessary to preserve and possible to change. Understanding that what is valued is not what exists but what is possible to create helps to resolve puzzles about accounting’s uncertain and ambiguous status and significance in the entrepreneurial economy. It also and more generally illustrates how accounting operates in relation to an unknowable object and future: not as a means to know or reveal but to write and rewrite a daring and ambitious narrative in which the protagonists (here the project-maker and venture) become something else (a manager and an organization).

© 2020 The Author(s) 2020. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. There is a discrepancy between CAPM-implied and realized returns. Using the CAPM in capital budgeting - as recommended in textbooks - should thus have real effects. For instance, low beta projects should be valued more by CAPM users than by the market. We test this hypothesis using M&A data and show that bids for low-beta private targets entail lower bidder returns. We provide further support by testing several ancillary predictions. Our analyses suggest that using the CAPM when valuing targets leads to valuation errors (relative to the market's view) corresponding on average to 12% to 33% of the deal values.