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http://dx.doi.org/10.5762/KAIS.2014.15.8.4863

Valuation of workout firms considering characteristics of the construction industry : focused on Black·Scholes Models  

Kim, Gu-Hoi (Graduate School of Urban Studies, Hanyang University)
Won, You-Ho (Graduate School of Urban Studies, Hanyang University)
Lee, Joo-Hyung (Graduate School of Urban Studies, Hanyang University)
Publication Information
Journal of the Korea Academia-Industrial cooperation Society / v.15, no.8, 2014 , pp. 4863-4873 More about this Journal
Abstract
The Korean construction industry has played a major role among all industries despite its relative small ratio of all. The global economic crisis, however, has adversely affected the construction industry. Therefore, the Korean government implemented a corporate restructuring process to ensure the stability of the financial market. The selection standard on workout enterprises by the government is based on two perspectives: (1) external factors, including macroeconomic indices and (2) internal factors, including financial statements of private enterprises. On the other hand, if considering the characteristics of the construction industry, a certain construction company may not be evaluated only by its financial statements. In other words, a valuation process that utilizes the financial statements only can be concluded to be irrational. Accordingly, this study aims to provide the valuation model, which embraces the characteristics of workout firms, and determines their implications. To accomplish this, each enterprise valuation was measured using DCF and Black Scholes models, and by comparing such results with their market value, each enterprise was determined to be either under or over-valued. The results of this study verified that the valuations of 2 workout companies (out of 4) showed a higher value than the market value.
Keywords
Construction Industry; Workout; Valuation; Black·Scholes; DCF; Real Option;
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