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| Non-Linear Effects in Equity Value: Based on the Analysis of the Value ofGoing-concern and Conversion Options |
| DENG Bing, LI Junkan, WANG Yiming
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Business School, Hunan University;
School of Economics, Peking University |
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Abstract Based on the analysis of the value of going-concern and conversion options, we introduce two types of non-linear effects in traditional equity pricing model. The new model, considering tax friction, depicts the concavity between equity value and revenue: a company's equity value increases monotonically with its revenue, while marginal effect is in decline. Furthermore, theoretical model is tested by empirical study based on data of companies listed on A-share market in China. For a single industry, the described relationship between equity and revenue is verified. However, there is not a uniformed nonlinear co-integration relationship between different industries because of heterogeneity.
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Received: 08 October 2014
Published: 19 April 2018
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