The Practice of Investment Valuation in Emerging Markets: Evidence from Argentina

42 Pages Posted: 29 Jun 2011

Date Written: April 1, 2006

Abstract

This paper discusses the challenges of applying traditional valuation techniques to emerging markets, and reports on how CFOs, financial advisors and private equity funds meet those challenges in Argentina, a major Latin American emerging economy. On many fronts, our findings show that there is substantial alignment with U.S. valuation practices. We find that: (a) discounted cashflow techniques like NPV, IRR and payback are very popular among corporations and financial advisors; (b) the CAPM is the most popular asset pricing model, yet it is frequently modified to account for country-specific risk; (c) capital budgeting analyses are performed in U.S. Dollars by non-Dollar companies; (d) financial advisors tend to apply U.S. betas to the emerging market, yet they rarely adjust betas for cross-border asymmetries; and (e) corporations tend to disregard the effects of small size and illiquidity. We provide tentative explanations for our findings.

Keywords: International capital budgeting, emerging markets, valuation

JEL Classification: G31

Suggested Citation

Pereiro, Luis E., The Practice of Investment Valuation in Emerging Markets: Evidence from Argentina (April 1, 2006). Journal of Multinational Financial Management, Vol. 16, No. 2, 2006. Available at SSRN: https://ssrn.com/abstract=1874151

Luis E. Pereiro (Contact Author)

Universidad Torcuato Di Tella ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires, 1428BIJ
Argentina
541151697301 (Phone)
541151697347 (Fax)

HOME PAGE: http://www.utdt.edu

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