Valuing Companies in Emerging Markets : The Case of Nigeria

Abstract: Title: Valuing companies in emerging markets: The case of Nigeria Author: Jaunty Edobor Aidamenbor and Chika Mgbemena Supervisor: Anders Hederstierna Department: School of Management, Blekinge Institute of Technology Course: Master’s thesis in business administration, FE 2413, 15 credits (ECTS). Background and Problem Discussion: Nigeria as an emerging market offers a wealth of opportunity to investors. However, very little is known about how real managers and analysts appraise the economic value of acquisitions and investment projects in Nigeria. Given the high risks of the Nigerian market and increased interests of investors in emerging markets, it is of great importance to research how practitioners carry out valuation in Nigeria. Purpose: This research attempts to investigate the valuation methods employed by finance managers, investors and financial advisors in Nigeria in comparison with best practices recommended in literature. Method: Quantitative empirical method using a questionnaire-based survey of financial practitioners with a total of 30 respondents (out of 200 contacted) from corporations, financial advisor/analyst firms, banks & insurance firms and some individual investors. Theory: The theory section in the literature review looks at different methods and techniques of valuation and the adjustments used to apply them to emerging markets. The common methods of valuation and a theoretical understanding of how they apply to emerging markets are summarised. Analysis: Quantitative analysis of the survey data to show the percentage of practitioners using a particular method of valuation and the areas of highest uncertainty has been carried out. Conclusion: Results show that Discounted Cashflow (DCF) is the most popular valuation method with practitioners in Nigeria. 100% of practitioners in corporations, banks and insurance firms and 80% of those in financial advisor firms use DCF-based valuation model. Other valuation models are less in use and the general practice in Nigeria compares well with those in Argentina and the US with little variations. This study also reveals that country specific issues such as computing the value of the country and market risk premiums are the most controversial areas in company valuation with practitioners in the Nigerian emerging market.