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CAPM-Based Company (Mis)valuations
- Source :
- SSRN
- Publication Year :
- 2018
- Publisher :
- HAL CCSD, 2018.
-
Abstract
- © 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.
- Subjects :
- Economics and Econometrics
Valuation effects
Mergers and Acquisitions
JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G31 - Capital Budgeting • Fixed Investment and Inventory Studies • Capacity
JEL: G - Financial Economics
Capital budgeting
JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G34 - Mergers • Acquisitions • Restructuring • Corporate Governance
Accounting
Capital Asset Pricing Model
0502 economics and business
Mergers and acquisitions
Economics
Econometrics
Capital asset pricing model
Beta (finance)
Valuation (finance)
040101 forestry
Capital Budgeting
050208 finance
05 social sciences
04 agricultural and veterinary sciences
Valuation
Value (economics)
[SHS.GESTION]Humanities and Social Sciences/Business administration
0401 agriculture, forestry, and fisheries
[SHS.GESTION] Humanities and Social Sciences/Business administration
Finance
Subjects
Details
- Language :
- English
- Database :
- OpenAIRE
- Journal :
- SSRN
- Accession number :
- edsair.doi.dedup.....dd8dc451286f2f1df85bfcf6d3ff7445