Inflation and Valuation Practice: German Evidence
Abstract The objective of our paper is to analyze, how valuation practice deals with inflation especially for the terminal value, and how company value is influenced by assumptions set by practitioners. For that reason, we examine how vulnerable companies could be regarding struggles to pass on infl...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Springer
2023-04-01
|
| Series: | Schmalenbach Journal of Business Research |
| Subjects: | |
| Online Access: | https://doi.org/10.1007/s41471-023-00160-4 |
| _version_ | 1797795572852195328 |
|---|---|
| author | Andreas Schüler Sebastian Wünsche |
| author_facet | Andreas Schüler Sebastian Wünsche |
| author_sort | Andreas Schüler |
| collection | DOAJ |
| description | Abstract The objective of our paper is to analyze, how valuation practice deals with inflation especially for the terminal value, and how company value is influenced by assumptions set by practitioners. For that reason, we examine how vulnerable companies could be regarding struggles to pass on inflationary effects to their customers. We analyze the inflation rates assumed for the steady-state (terminal value) by comparing them to different estimators for the inflation rate expected at the valuation date (Survey of Professional Forecasters, inflation rates derived by comparing real and nominal rate of returns, inflation swaps). We quantify the implications of using different inflation rates for future cash flow development, terminal value and the company value at the valuation date, and compare nominal reported values with company values in a (hypothetical) world without inflation. Our sample consists of 263 valuation reports written by German auditors with valuation dates between 2000 to 2021. Most of the reports aim at determining the price per share to compensate minority shareholders during a squeeze-out. Our results question inter alia the preference for a constant company specific inflation rate of around 1% on average, and we quantify a number of value effects. |
| first_indexed | 2024-03-13T03:20:00Z |
| format | Article |
| id | doaj.art-47baf44ffbe0488cb1ac58c8ac72f809 |
| institution | Directory Open Access Journal |
| issn | 2366-6153 |
| language | English |
| last_indexed | 2024-03-13T03:20:00Z |
| publishDate | 2023-04-01 |
| publisher | Springer |
| record_format | Article |
| series | Schmalenbach Journal of Business Research |
| spelling | doaj.art-47baf44ffbe0488cb1ac58c8ac72f8092023-06-25T11:23:56ZengSpringerSchmalenbach Journal of Business Research2366-61532023-04-0175223926610.1007/s41471-023-00160-4Inflation and Valuation Practice: German EvidenceAndreas Schüler0Sebastian Wünsche1Professur für Finanzwirtschaft & Finanzdienstleistungen, Institut für Controlling, Finanz- & Risikomanagement, Fakultät für Wirtschafts- und Organisationswissenschaften, Universität der Bundeswehr MünchenFakultät für Wirtschafts- und Organisationswissenschaften, Universität der Bundeswehr MünchenAbstract The objective of our paper is to analyze, how valuation practice deals with inflation especially for the terminal value, and how company value is influenced by assumptions set by practitioners. For that reason, we examine how vulnerable companies could be regarding struggles to pass on inflationary effects to their customers. We analyze the inflation rates assumed for the steady-state (terminal value) by comparing them to different estimators for the inflation rate expected at the valuation date (Survey of Professional Forecasters, inflation rates derived by comparing real and nominal rate of returns, inflation swaps). We quantify the implications of using different inflation rates for future cash flow development, terminal value and the company value at the valuation date, and compare nominal reported values with company values in a (hypothetical) world without inflation. Our sample consists of 263 valuation reports written by German auditors with valuation dates between 2000 to 2021. Most of the reports aim at determining the price per share to compensate minority shareholders during a squeeze-out. Our results question inter alia the preference for a constant company specific inflation rate of around 1% on average, and we quantify a number of value effects.https://doi.org/10.1007/s41471-023-00160-4Company valuationTerminal valueInflationDiscounted cash flowCompany growth |
| spellingShingle | Andreas Schüler Sebastian Wünsche Inflation and Valuation Practice: German Evidence Schmalenbach Journal of Business Research Company valuation Terminal value Inflation Discounted cash flow Company growth |
| title | Inflation and Valuation Practice: German Evidence |
| title_full | Inflation and Valuation Practice: German Evidence |
| title_fullStr | Inflation and Valuation Practice: German Evidence |
| title_full_unstemmed | Inflation and Valuation Practice: German Evidence |
| title_short | Inflation and Valuation Practice: German Evidence |
| title_sort | inflation and valuation practice german evidence |
| topic | Company valuation Terminal value Inflation Discounted cash flow Company growth |
| url | https://doi.org/10.1007/s41471-023-00160-4 |
| work_keys_str_mv | AT andreasschuler inflationandvaluationpracticegermanevidence AT sebastianwunsche inflationandvaluationpracticegermanevidence |