DP11303 The Choice of Valuation Techniques in Practice: Education versus Profession

Author(s): Lilia Mukhlynina, Kjell G Nyborg
Publication Date: May 2016
Keyword(s): DCF, finance education, multiples, sociological hypothesis, Valuation, valuation cultures
JEL(s): A11, A14, A20, G02, G24, G31, G32
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11303

We use a survey approach to learn about valuation professionals' choices and implementations of valuation techniques in practice. The survey design allows us to control for a respondent's professional subgroup (e.g., consulting), education, experience, and valuation purpose characteristics. We find support for the 'sociological hypothesis'? that profession matters more than education; different professions have different valuation cultures. Other factors are less important. There are also many commonalities across respondents. Most use both multiples and DCF, but implement DCF in a way that almost turns it into a multiples exercise. Confusion reigns with respect to interest tax shields and the WACC. Higher educational levels do not reduce the confusion. Our overall findings matter because valuation professionals function as intermediaries in the capital allocation process. The relative unimportance of education raises questions about the role and benefit of higher level finance education.