Multiple Regresion for Market Capitalization

Powerful Essays
Multiple Regression Model for
Market Capitalisation
Duvan Lopez (Victoria University) Yen Nguyen (Victoria University) Meutia Iqbal (Victoria University)
Bayu Suropati (Victoria University)

ABSTRACT
Over the years, the importance of market capitalisation has been well acknowledged to value a certain company for its shareholders, future acquirers, and generally anyone related with the company. There are various methodologies that have been used to analyse market capitalisation, such as cash flow based analysis, real options and regression analysis. In this study, we used multiple regression analysis to determine which of the numerous important factors yield the best model for market capitalisation as the multiples approach to company valuation. The aim of this paper is to back-testing Ko’s (2009) work in his research paper, Multiple Regression Model For Market Capitalization, using the same, exact methodology he used. Although our work refers to what has been done by Ko (2009) in we found some differences with him in terms of the independent variables that have the most statistically significant relationship with the dependent variable, market capitalisation as we did not use the same number of companies that he used.

INTRODUCTION In the business world, it is well understood that the main goal of companies is to earn profit as high as possible. This is why every company need to be aware of its stock prices in the relation to profit. Market capitalisation is highly essential to companies, especially public companies, as it is directly proportional to stock price. Stockholders, future acquirers, or anyone who desires to attain a general knowledge of a certain company’s value could see it from that its market capitalisation. If a company wanted to acquire some other company, the first thing to be considered is its market capitalisation. If it has a good value, or is believed to have a greater value in the future, that company is likely to be acquired by



References: Braun, T. 2004, The Philosophy Of Branding: Great Philosophers Think Brands, Kogan Page, accessed at 10 October 2011, retrieved from EBL Clifton, R & Simmons, J 2003, Brands and branding, Economist Books, viewed 11 October 2011, retrieved from EBL. Defusco, R., McLeavey, D., Pinto, J., Runkle, D. & Anson, M. 2010, Quantitative Investment Analysis, John Wiley & Sons Inc accessed at 11 October 2011, retrieved from EBL. Glasgow, B. 2002, ‘Metrics and Measures: Cash Flow-Based Analysis Rules The Roost’, Chemical Market Reporter, 262(19), pp. FR3-FR4. Jagle, A. J. 1999, ‘Shareholder value, real options, and innovation in technology–intensive companies’, R&D Management, 29(3), pp. 271-287. Ko, K. 2009, ‘Multiple Regression Model For Market Capitalization’, The Journal of Global Business Issues, vol. 3, no. 2, pp. 167-172. Lie, E. & Lie, H. J. 2002, ‘Multiples Used to Estimate Corporate Value’, Financial Analysts Journal, 58(2), pp. 44-54. Olsen, E. 2002, ‘VBM Strategies an Investor Can Love’, Journal of Business Strategy, 23(6), pp. 14-19. Samuel, M. 2003, ‘The Applicability of a Market Approach Valuation Analysis that Employs Only a Single Comparable: Heck V. Commissioner’, Tax Lawyer, 56(2), pp. 475-483. Wourner, S., Racheva-Iotova, B., & Stoyanov, S. 2002, ‘Calibration of a basket option model applied to company valuation’, Mathematical Methods of Operations Research, 55(2), pp. 247-263.

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