WFU Law School
Law & Valuation
3.4.2 Cash Flow

3.4.3 Comparables

[earnings or revenues or net assets - comparables]

"IAS versus US GAAP: Information Asymmetry-Based Evidence from Germany's New Market"
Journal of Accounting Research, June 2003
BY: CHRISTIAN LEUZ, University of Pennsylvania:

Motivated by the debate about globally uniform accounting standards, this paper investigates whether firms using US GAAP vis-a-vis IAS exhibit differences in several proxies for information asymmetry. The study exploits a unique setting where the two sets of standards are put on a level playing field. Firms trading in Germany's New Market must choose between IAS and US GAAP for financial reporting, but face the same regulatory environment otherwise. Thus, institutional factors such as listing requirements, market icrostructure and standards enforcement are held constant. In this setting, differences in the bid-ask spread and share turnover between IAS and US GAAP firms are statistically insignificant and economically small. Subsequent analyses of analysts' forecast dispersion, IPO underpricing and firms' standard choices corroborate these findings. Thus, at least for New Market firms, the choice between IAS and US GAAP appears to be of little consequence for information asymmetry and market liquidity. These findings do not support widespread claims that US GAAP produce financial statements of higher informational quality than IAS.


M.G. Bancorporation v. Le Beau (Del. 1999)

three distinct methodologies to value MGB's two operating bank subsidiaries: the comparative publicly-traded company approach, yielding a $ 76.24 to $ 77.50 per share value; the discounted cash flow ("DCF") method, yielding a $ 73.96 to $ 72.23 per share value; and, the comparative acquisitions approach, yielding an $ 85 per share value.

In performing his analysis, Clarke added a control premium to the values of the two subsidiaries to reflect the value of MGB's controlling interest in those subsidiaries. He then added the value of MGB's remaining assets to his valuations [**7] of the two subsidiaries. Clarke arrived at an overall fair value of $ 85 per share for MGB.


3.4.2 Cash Flow

©2003 Professor Alan R. Palmiter

This page was last updated on: September 25, 2003