Original Research

An evaluation of the use of professional judgement in corporate valuations in South Africa

Tasneem Gaibie, Avani Sebastian, Andres Merino
South African Journal of Business Management | Vol 55, No 1 | a3878 | DOI: https://doi.org/10.4102/sajbm.v55i1.3878 | © 2024 Tasneem Gaibie, Avani Sebastian, Andres Merino | This work is licensed under CC Attribution 4.0
Submitted: 06 January 2023 | Published: 30 January 2024

About the author(s)

Tasneem Gaibie, School of Accountancy, Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, South Africa
Avani Sebastian, School of Accountancy, Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, South Africa
Andres Merino, School of Accountancy, Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, South Africa

Abstract

Purpose: Global merger and acquisition and capital market activity have increased over the last decade. A key determinant of the value of these transactions are the results of corporate valuations, which require technical expertise as well as professional judgement. The purpose of this research is to identify aspects of corporate valuations, for the purposes of mergers and acquisitions, which require professional judgement and to understand why the judgement is necessary.

Design/methodology/approach: We followed a mixed-method approach by gathering data from valuation practitioners using a survey, followed by semi-structured interviews.

Findings/results: We find that professional judgement is required throughout the process, from identifying the most appropriate approach to adjusting theoretical valuation inputs. Industry and market nuances are key reasons for professional judgement as is the perceived lack of appropriate asset pricing models.

Practical implications: The views of practitioners, juxtaposed with academic literature on investment theory, have the potential to contribute to the establishment of best practice in corporate valuations.

Originality/value: Prior academic research has focused largely on the technical aspects of corporate valuations. In this research, we present the first-hand experiences of practitioners whose professional judgements are a key contributor to the valuations that underpin corporate actions in the South African market. This research extends both academic as well as corporate research.


Keywords

corporate valuation; professional judgement; CAPM; valuation inputs; valuation approach

JEL Codes

B26: Financial Economics; G12: Asset Pricing • Trading Volume • Bond Interest Rates; G31: Capital Budgeting • Fixed Investment and Inventory Studies • Capacity

Sustainable Development Goal

Goal 16: Peace, justice and strong institutions

Metrics

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