Multiple Regression Model For Market Capitalization.

Ko, Kenneth

Knowing the value of a public company, its market capitalization, is of vital importance for stockholders, would be acquirers, and more generally anyone associated with the given company. With this in mind, many methodologies have been employed to analyze market capitalization, including cash-flow based analysis and real options. As the multiples approach to company valuation has been well established, we used multiple regression analysis to determine which of several important factors yield the best model for market capitalization. We conducted a study of some of the most successful companies in the U.S. and found that the best model (in terms of the adjusted R2 value) for market capitalization includes brand value, dividend, price-to-sales ratio, and forward price-earnings-ratio. We found that brand value had the highest correlation with market capitalization. We also discovered the interesting result that, for the companies we studied, the brand values of smaller companies (in terms of market capitalization) have a stronger relationship with market capitalization than bigger companies. Lastly, we found that for companies with relatively high market capitalizations, a relatively high brand value seems to cause a boost in price-to-sales ratio.

UNITED States; MULTIPLE regression analysis; MARKET capitalization; AMERICAN business enterprises; BRAND equity; DIVIDENDS; PRICE-earnings ratio

Journal of Global Business Issues, 2009, Vol 3, Issue 2, p167

1931-311X

Academic Journal