ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Analysis of Private Company Stock Valuation under Enforcement Regulations for Issuance and Disclosure of Securities

  • Jang, Hong Seok Department of Business Administration, The Catholic University of Korea

Asian Tax Journal Vol. 18 No. 3 (2017), pp. 63-90

Abstract

Dividend discount method, Discounted cash flow method, Residual income method, Economic value added method, relative valuation method etc are receiving theoretical support on the stock valuation. In practice, stock valuation is based on fair market value or market price. In the case of stocks of publicly traded companies, there is little controversy related to valuation because exchange price, market price, can be observed in the market, in the case of unlisted stocks, it is difficult for the evaluator to estimate the input variables for valuation at the time of valuation, and there is a controversy about the appropriateness of the valuation. Therefore, the valuation of non － listed corporate stocks in practice is regulated by some selection and mixing of theoretical methods because of difficulty of practical application of each theory and difference of evaluation purpose. However, it is a reality that the regulation according to purpose is being criticized that it can not evaluate the actual value of individual companies by mass production of standardized and formalized application. Enforcement Regulations for Issuance and Disclosure of Securities were changed because they were on the criticism that the uniform evaluation rules do not adequately reflect the actual value of individual companies on Dec. 2012. The change is that the flexibility of the method of earning capitalizing valuation is to be reasonably estimated by applying a model that is generally regarded as fair and valid for calculating earning capitalizing values such as cash flow discount model and dividend discount model Respectively. As a result, in practice, it became possible to select a flexible valuation method rather than a uniform rule in the valuation of unlisted corporations. In this study, we analyzed the unlisted corporation merger evaluation report of the listed corporation after the amendment of the regulations and examined whether it is practically flexible operation through amendment of the regulations. As a result of the empirical analysis, it was confirmed that many evaluation reports do not apply the flexible regulation for the real value evaluation of individual companies, it is considered that this is mainly due to the reason that the adjustment of the valuation amount according to the purpose of the merger company can be intervened. This suggests that flexible regulation may interfere with fair evaluation, so it may be necessary to establish regulations depending on the situation.

Keywords

  • unlisted stocks
  • stock valuation
  • instictive value
  • earning capitalized value
  • Enforcement Regulations for Issuance and Disclosure of Securities

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