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Abstract:
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Recent advances in the field of "customer-based corporate valuation" (CBCV) -- i.e., determining the forward-looking financial valuation of firms from the "bottom up" by analyzing their customer bases -- have led to growing interest in this methodology as a complementary approach to traditional "top down" financial valuation methodologies. Besides achieving predictive accuracy which is often superior to that of professional financial analysts, these methods allow for richer insights into the behavioral patterns of firms' customers. This is of interest not only to external investors (e.g. hedge funds, venture capital), but also to the internal management of firms. In this panel, we will discuss the statistical challenges introduced by the limited nature of the data available to perform CBCV -- for example, disclosures suffer from missingness/censoring, temporal aggregation, and sparsity. We discuss current state-of-the-art methodologies for overcoming these difficulties to value both subscription and non-subscription based businesses. We will illustrate these methods on several empirical examples and discuss the strategic implications for internal and external stakeholders.
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