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Literature Review for Research Papers

On

Stock Valuation and Organizational Performance

Prepared for Miss Nida Farman

Prepared by Samiuddin Khan Babar

Roll # 11083

MBA 3 Section-C(Morning)

National University of Modern Languages Islamabad


1- Simple Valuation Model and Growth Expectation

Moris G. Danielson(1998) studied the relationship between a simple valuation


Model and growth expectations. The author compared the model with Gordon
And Gordon model.The results showed that investors quantify expectations from
the stock based on five factors:
I- Expected Earnings
II- Re-investment rate
III-Return on investment
IV- Risk adjustment discount rate
V- The length of the period of competitive advantage

2- A simple approach to common stock valuation


Bruce D. Fielitz and Fredrick L Muller(1985) studied the common stock
valuation and investor’s decision making from 1973 to 1979 of 25 stocks using
estimation. The results showed that statistically oriented models such as the
simple price earning ratio approach are effective tools for valuing stocks.

3- Capital Structure and stock Returns


Ivo Welch(2004) analyzed the relationship b/w capital structure and stock returns
on 2679 firms from 1964 to 2000 using normal distribution and central measure
of tendency. The results showed that stock returns are a first order determinant of
debt-ratios and they help to explain capital structure dynamics.

4- The Sock Valuation Process: The Analyst’s View


Lal C.Chugh and Joseph W.Meador(1984) determined that how analysts evaluate
common stocks by surveying 2000 members of the financial analysts federation.
The results showed that analysts mostly emphasize on long term over short term
and expected changes in EPS, Expected return on equity and prospects for the
relevance industry are considered important variables in long run.
5- The stock price effects of alternative types of
Management Earnings forecast.
Grace Pownall, Charles wasley and George waymire(1991) studied the relation
between management forecasts and stock prices on 445 management forecasts
from 1980 to 1987, using measures of dispersion and descriptive statistical tools.
The results revealed that forecasts are less informative than earnings
announcements and interim earnings forecasts are significantly more informative
than annual forecast.
6- The economic dilution of employee stock options:
Diluted EPS for valuation and Financial Reporting.
John E. core wayne R.Guay and S.P Kothri(2000) derived a measure of diluted
EPS that incorporates the economic implications of the dilutive effects of
employee stock options for 731 employee stock plans using standard formulas for
EPS, stock price Valuation and price earning ratios.The results showed that when
the difference b/w diluted EPS and economic dilution increases, return earnings
and price earnings will be lowered down.

7- Stock Valution and learning about Profitability


Lubos Pastor and Pietro Veronesi(2000) studied the effects of the knowledge
about profitability about stock valuation on 150 firms using standard formulas for
dividend growth models. The results showed that younger stocks and stocks that
pay no dividends have more volatile returns.

8- Option Pricing:Valuation of models and applications


Mark Broadie and Jerome B. detemple(2004) analyzed option pricing from its
origin to the present. The paper is a descriptive proof of different types of option
pricing.The authors emphasized on recent trends in methodology and modeling
for stock valuation.

9- Impact of earnings, Dividends and cash flows on


stock returns: case of Taiwan’s stock Market
Eric Liluan Chu (1994) studied the relationship b/w stock returns and
fundamental information such as earnings, dividends and cash flows on671 firms
from 1991 to 1994 using testing and hypothesis. The results showed that
accounting earnings are positively related to stock returns.
10- Inter-relation of comparable company selection and
valuation model choice
Reilly and Brown(2000) studied the relationship b/w comparable company
selection and valuation model choice based on survey performed on 203 financial
analysts. The results showed that 50% of the analysts admitted that valuation
model choice is associated with problems faced by the company.

11- Social Responsibility and Stock valuation


H.Russel Foglor and Fred Nutt(1975) studied the relationship b/w social
responsibility of the firm and stock valuation on 17 companies by using
regression correlation. The results showed that institutional investors do not
reflect a high social concern in their actual investing.

12- Measurement effects and the variance of returns


after stock splots and stock dividends
Jeniffer Lynch Koski(1998) studied the relationship b/w two factors- Bid-ask
spread and price discreteness on 361 samples using central measure of tendency .
The results showed that spreads and price discreteness do not explain increased
variance after stock distributions.

13- Use of Stock price information to regulate firms


Antoine Faure Grimaud(1996) examined the role of information contained in
stock prices in the regulation of privatized firms. He concluded that there is a
positive role of stock price information in a double sided incentive problem b/w
regulated firms and regulators.

14- A Fundamental analysis of Korean stock returns


Sadip Mukerji, Manjeet S. Dhatt and young H. kim(1993) studied the relationship
b/w stock returns and fundamental variables in Korea during 1982-1993 on a
sample which only inclided those firms whose business year ends in December
by using correlation coefficient. The results showed that the stock returns during
1982-1993 were positively related with book- market,sales price and debt-equity
ratio while negatively related with firm size and not related to earnings price
ratio.
15- Shareholder’s consumption patterns, valuation and
required rate of return.
David C. Fletcher (1975) studied the relationship b/w shareholder’s consumption
patterns, valuation and the required rate of return. The author concluded that the
stock dividend option enables the shareholders to attain any pay-out ratio and
adjust his income over time at a minimum cost.

16- Dividend and Investment Decisions of Canadian firms


Ievan Morgan, Jacques saint-pierre(1978) analyzed the relationship between
dividend decisions and investment decisions of the firm, on 298 American
companies for the period of 1946-1968, using testing of hypothesis. The results
showed that there is no relationship between investment decisions and dividend
decisions i.e they both are separable.
17- Taxes and Organizational Form
David A.Guenther(1992) studied the impact of tax cost on organizational
form(corporations or partnerships) on 95 corporations from the period of
1978 to 1985, using testing of hypothesis. The results showed that the tax
cost is greater for corporations in comparison to that of partnerships. so a
change in tax rates affects the relative tax cost of competing organizational
form , which is likely to change capital structure decisions.
18- The dividend-price ratio and expectations of future dividends
and discount factors.
John Y. Campbell and Robert J.Shiller(1989) studied the relationship
between dividend price ratio and expectations of future dividends,discount
factors on prices and dividends for the Standard and Poor’s composite stock
price index(500) using the formula of dividend-ratio,which shows a linear
relationship between returns,dividends and prices. the results showed that
dividends price-ratio does move with rationally expected future growth in
dividends and short term interest rates, consumption growth and validity of
stock returns are helpful in explaining stock movements.