Uncertainty, Investment and Equity Valuation

• Main Authors: Chien-Jen Wang, 汪倩人
• Other Authors: Po-Chin Wu
• Format: Others
• Language: en_US
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/42401041399413357181

博士 === 中原大學 === 管理研究所 === 94 === This Ph.D. dissertation, entitled “Uncertainty, Investment and Equity Valuation”, includes three essays on the related issues: (1) The Effect of Systematic Risk on Equity Valuation – An Extended Application of the Ohlson Model (2)Uncertainty, Fundamentals and Equity Valuation – An Application of the Non-Linear Ohlson Model (3)Twin-Rate Uncertainty, Debt and Investment Decisions – An Evidence of Dow Jones Panel Data The first essay studies the problem of “undefined non-accounting information” in the original Ohlson valuation model and regards the systematic risk as the proxy variables of undefined non-accounting information to improve the forecasting performance in the stock prices. The revised Ohlson model describes actual uncertain investment environment and displays better forecasting performance than the original Ohlson model. The second essay challenges the reasonability of “homogeneous risk-neutral investors” assumption in the original Ohlson model under an incomplete stock market. This study revises the original Ohlson model by utilizing the non-linear Ohlson model (NLOM) which transplants the concepts of “nonlinearities” and “smooth transition” of STARX model (McMillan, 2001) to represent the arbitrage behavior and heterogeneity among investors and using the uncertainties of macroeconomic fundamentals as exogenous proxy variables of “non-accounting information”. The empirical evidences show that the NLOM-Logistic model outperforms the original Ohlson valuation model and the NLOM-Exponential model. In other words, the assumption of “homogeneous risk-neutral investors” of the original Ohlson model is unsuitable and there exists arbitrage behavior and smooth transition phenomenon in stock price. The third essay modifies the intertemporal optimization model, proposed by Bo and Sterken (2002), by considering firm’s debt composition to derive a more suitable physical investment function and evaluates how twin-rate (i.e. interest rate and exchange rate) uncertainty, derived from the issuance of domestic and foreign debts, influences firm’s investment decision. The empirical results reveal that, from the viewpoint of market standing, the companies in Dow Jones Indexes decrease their investment as the uncertainty increases. Besides, when there is lower level of foreign interest rate along with lower exchange rate volatility, the companies in Dow Jones Indexes are inclined to increase the issuance of overseas firm debt to finance their investment planning.