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Biases in Mid-Year and End-of-Year Conventions in Discounted Cash Flow Models for Corporate Valuations

Edward R. Lawrence

Journal of Legal Economics2009article
ABDC B
Weight
0.44

Abstract

The end-of-year convention and the mid-year convention are two of the most widely used methodologies for discounted cash flow models in economic and financial applications. This paper uses a computer simulation to investigate how well the standard conventions perform against benchmark models of known monthly cash flows. The models are developed around a corporate valuation and loss of business income framework. The findings suggest that both the end-of-year and mid-year conventions have strong biases that can materially impact the models' results.

3 citations

Cite this paper

@article{edward2009,
  title        = {{Biases in Mid-Year and End-of-Year Conventions in Discounted Cash Flow Models for Corporate Valuations}},
  author       = {Edward R. Lawrence},
  journal      = {Journal of Legal Economics},
  year         = {2009},
}

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Biases in Mid-Year and End-of-Year Conventions in Discounted Cash Flow Models for Corporate Valuations

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Evidence weight

0.44

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.23 × 0.4 = 0.09
M · momentum0.80 × 0.15 = 0.12
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

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