Discussion of "Predicting firm value: The superiority of q-theory over residential income" by Miles Gietzmann and Adam Ostaszewski

The paper by Gietzmann and Ostasqewski (GO) provides an interesting and challenging exposition of how the real options literature, and particularly the study by Abel et al. (1996), might contribute in incorporating this way of thinking into the accounting-based valuation literature. GO argue that in...

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Bibliographic Details
Published in:Accounting and business research 2004-10, Vol.34 (4), p.379
Main Author: O'Hanlon, John
Format: Article
Language:English
Subjects:
Accounting
Business valuation
Corporate finance
Income
Real options analysis
Theory
Valuation
Online Access:Get full text
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Summary:The paper by Gietzmann and Ostasqewski (GO) provides an interesting and challenging exposition of how the real options literature, and particularly the study by Abel et al. (1996), might contribute in incorporating this way of thinking into the accounting-based valuation literature. GO argue that insights from the real options literature can help relax the unduly restrictive constant-parameter assumption conventionally found in the LIM-based application of RIVM. This comment focuses on two points. First, it observes that the complexity of the GO analysis is indicative of the barriers that exist to the formal incorporation of insights from the real options literature into the practice of empirical market-based accounting research. Second, it observes that accounting numbers and forecasts thereof are conventionally presented in historical cost terms, and that the adjustment of such numbers to another valuation basis for use in valuation models can generate considerable complexity, even in a simple setting.
ISSN:0001-4788
2159-4260