Early stage companies face more risk than most valuators conclude
Neither financial nor valuation literature takes into account the relatively short life expectancy of business enterprises. For example, fewer than 50% of new firms live longer than 10 years, says James R. Morris (University of Colorado at Denver), yet it is common for business appraisers to estimate firm value with a long-term horizon model such as a Gordon Growth or other model that holds growth constant. At the same time, most corporation statutes assume a perpetual lifespan of a business. How are appraisers to reconcile this apparent conflict?
In just a week, on Oct. 26, join Morris for Life and Death of Businesses: Firm Mortality and Business Valuation, in which he discusses the “real life” expectancy of firms and demonstrates how to account for the likelihood of their death in valuations. Morris will review the most recent data on firm life expectancy and death rates, culled from the field of industrial organization, so that valuation practitioners can factor the life and death of firms more accurately into their ultimate conclusions.