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Many venture capitalists (VCs) use the “VC method” of valuation where they use judgment to estimate a probability of successful exit while determining the ownership share to demand in exchange for investing in a venture. However, prior models are not aligned with the “VC method” because they do not consider private information about entrepreneurial characteristics, the primary drivers of the above probability, and consequently do not model judgment. The three main chapters of this thesis—one theoretical, one simulation, and one empirical study—examine the venture capital deal process in sync with the “VC method.” Chapter 2 is theoretical and develops a principal-agent model of venture capital deal process incorporating double-sided moral hazard and one-sided private information. The VC is never fully informed about the entrepreneur’s disutility of effort in spite of due diligence checks, so takes on a belief about the latter’s performance in the funded venture to determine the offer. This study suggests that there exists a critical point in the VC’s belief—and correspondingly in the VC’s ownership share—that maximizes the total return to the two parties. It also uncovers optimal revision strategies for the VC to adopt if the offer is rejected where it is shown that the VC should develop a strong advisory capacity and minimize time constraints to facilitate investment. Chapter 3 simulates venture capital deals as per the theoretical model and confirms the existence of critical points in the VC’s belief and ownership share that maximize the returns to the two parties and their total return. Particularly, the VC’s return (in excess of his or her return from an alternate investment) peaks for a moderate ownership share for the VC. Since private information with the entrepreneur would preclude the VC from knowing these critical points a priori, the VC should demand a moderate ownership share to stay close to such a peak. Using data from simulations, we also generate predictions about the properties of the venture capital deal space—notably: (a) Teamwork is crucial to financing; and (b) If the VC is highly confident about the entrepreneur’s performance, it would work to the latter’s advantage. Chapter 4 reports the results from our survey of eight seasoned VCs affiliated with seven firms operating in Canada, USA, and UK, where our findings received a high degree of support.

Many venture capitalists (VCs) use the “VC method” of valuation where they use judgment to estimate a probability of successful exit while determining the ownership share to demand in exchange for investing in a venture. However, prior models are not aligned with the “VC method” because they do not consider private information about entrepreneurial characteristics, the primary drivers of the above probability, and consequently do not model judgment. The three main chapters of this thesis—one theoretical, one simulation, and one empirical study—examine the venture capital deal process in sync with the “VC method.” Chapter 2 is theoretical and develops a principal-agent model of venture capital deal process incorporating double-sided moral hazard and one-sided private information. The VC is never fully informed about the entrepreneur’s disutility of effort in spite of due diligence checks, so takes on a belief about the latter’s performance in the funded venture to determine the offer. This study suggests that there exists a critical point in the VC’s belief—and correspondingly in the VC’s ownership share—that maximizes the total return to the two parties. It also uncovers optimal revision strategies for the VC to adopt if the offer is rejected where it is shown that the VC should develop a strong advisory capacity and minimize time constraints to facilitate investment. Chapter 3 simulates venture capital deals as per the theoretical model and confirms the existence of critical points in the VC’s belief and ownership share that maximize the returns to the two parties and their total return. Particularly, the VC’s return (in excess of his or her return from an alternate investment) peaks for a moderate ownership share for the VC. Since private information with the entrepreneur would preclude the VC from knowing these critical points a priori, the VC should demand a moderate ownership share to stay close to such a peak. Using data from simulations, we also generate predictions about the properties of the venture capital deal space—notably: (a) Teamwork is crucial to financing; and (b) If the VC is highly confident about the entrepreneur’s performance, it would work to the latter’s advantage. Chapter 4 reports the results from our survey of eight seasoned VCs affiliated with seven firms operating in Canada, USA, and UK, where our findings received a high degree of support.

Firm valuation by using DCF FCFF method. Macro-economic analysis, financial analysis, strategy analysis of firm, drawing up a financial plan. Software Stratex v. 5.2.04 and Evalent v. 3.6.01.

This dissertation consists of two essays, both co-authored with Ugur Lel. The first essay (Chapter 1) examines whether high CEO pay inequality (CPI), the share of total managerial pay captured by the CEO, is an outcome of poor corporate governance, and its implications for shareholder wealth. We exploit the 2002 NYSE and NASDAQ governance reforms that mandated firms to have majority independent boards as a quasi-exogenous source of variation in the internal governance environment of firms. Results show that CPI decreases following the passage of these exchange listing regulations, but only in firms with entrenched CEOs affected by the exchange listing regulations. Firm value also increases for these firms. These results are robust to a variety of robustness checks such as a matched sample analysis and placebo tests. Overall, our results suggest that poor governance environments are associated with high managerial pay differences and consequently lower firm valuations, supporting the view that high CEO pay inequality reflects managerial entrenchment. The second essay (Chapter 2) examines whether shareholders use executive compensation channel to align managerial horizon with their investment horizon. We utilize a newly emerged empirical measure, pay duration, to measure managerial horizon. For shareholder horizon, we use the fraction of long-term institutional ownership in the firm. Results show that there is a positive association between long-term institutional ownership and CEO pay duration, suggesting that shareholder horizon is a determining factor in compensation contracts. We address reverse causality using indexer institutions. We also establish a causal link from investor horizon to CEO pay duration using institution mergers as a source of exogenous variation in investor horizon of the firm. We extend our results to hedge fund activism and document a negative relation between hedge fund activism and pay duration, which is consistent with our argument. Overall our results suggest that shareholders structure CEO pay in a way that is consistent with their investment horizon. / Ph. D.

The master's thesis focuses on retail company Koruna, s. r. o. valuation by using income-based methods of discounted cash flows of an entity and economic value added. The thesis is divided into two main parts. The first part defines the theoretical basis of the thesis and the second part deals with the practical application of knowledge to the specific company. The practical part contains strategic and financial analysis and application of income-based methods which leads to the determination of the company's value to the 1. 1. 2016.

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This thesis proposes a theory of inefficient markets that uses limited rational choice as a central trait and I call it the theory of Homo comperiens. The theory limits the alternatives and states that the subjects are aware of and only allow them to have rational preference relations on the limited action set and state set, i.e. limited rationality is introduced. With limited rational choice, I drive a wedge between the market price and the intrinsic value and thus create an arbitrage market. In the theory, the subjects are allowed to gain knowledge about something that they previously were unaware of. As the discovery proceeds, the arbitrage opportunities disappear, and the market prices regress towards the intrinsic values. The theory is applied to firms and market-pricing models for a Homo comperiens environment is a result. The application of the theory to firms also leads to testable propositions that I test on a uniquely comprehensive Swedish accounting database that cover the years 1978—1994. Hypotheses are tested which argues that risk-adjusted residual rates-of-returns exist. The null hypotheses argue that risk-adjusted residual rates-of-returns do not exist (since they assume a no-arbitrage market). The null hypotheses are rejected in favor of their alternatives at a 0.0 percent significance level. The tests use approximately 22,200 observations. I also test hypotheses which argue that risk-adjusted residual rates-of-returns regress to zero with time. The null hypotheses are randomly walking risk-adjusted residual rates-of-returns, which are rejected in favor of the alternative hypotheses. The hypotheses are tested using panel regression models and goodness-of-fit tests. I reject the null hypotheses of random walk at a 0.0 percent significance level. Finally, the results are validated using out-of-sample predictions where my models compete with random-walk predictions. It finds that the absolute prediction errors from my models are between 12 to 24 percent less than the errors from the random walk model. These results are significant at a 0.0 percent significance level.