Review of Financial Studies Vol. 26 No. 12 2013
A Supply Approach to Valuation
Abstract
[A new methodology for equity valuation arises from the perspective of managers' supply of capital assets. Under q-theory, managers optimally adjust the supply of assets to changes in their market value. The first-order condition of investment then provides a valuation equation that infers asset prices from managers' costs of supplying the assets. This equation fits well the Tobin's q levels across many testing assets, including portfolios formed on q. With current investment-to-capital as the only input, the supply approach does not require cash flow forecasts or discount rate estimates, both of which are notoriously difficult to obtain in practice.]
- Volume
- 26
- Issue
- 12
- Pages
- 3029-3067
- Sources
- bibtex:phds-export.bib