An empirical investigation into the valuation of unlisted companies in the New Zealand courts.
Degree GrantorUniversity of Canterbury
Degree NameMaster of Commerce
The valuation of unlisted compames has received little attention in finance literature compared to the valuation of listed companies. This is despite the fact that the bulk of companies are unlisted (99.9%). This thesis provides the first significant empirical research into the valuation of unlisted companies in New Zealand. The modern finance technique of discounted cash flow (DCF) analysis is posited as being the best way to value unlisted companies as going concerns. It is found that valuation practice in the New Zealand Courts has generally not followed modern finance theory. , DCF analysis has received scant usage. Additionally, North American research that has investigated the relevant information (factors) for valuing unlisted companies has been largely ignored in New Zealand. This thesis investigated Court data over a 19 year time span from 1976 until 1995. All types of cases involving the valuation of unlisted companies were considered. Information was initially analysed by a computer database, followed by a more in-depth study. The primary findings are that notional liquidation and capitalised maintainable earmngs are the main valuation methods utilised in the New Zealand Courts. Compromise decisions are often reached by judges (66.7% of the time), but the important valuation factors are rarely enunciated. Recommendations are made to the Institute of Chartered Accountants of New Zealand (ICANZ). The methods currently being utilised to value unlisted companies in New Zealand are antiquated and need to be modernised. Therefore, the ICANZ should raise standards and stimulate debate in the field. Continuing education courses need to educate valuers on recent developments in modern finance theory, in particular, DCF analysis. This will benefit the Courts as it will give them more transparent and reliable information. Additionally, guidelines on valuation factors would be of value. A number of areas for further research are suggested.