Valuation and Long-Term Growth Expectations

Angel Tengulov, Josef Zechner, and Jeffrey Zwiebel

♦ Long-term growth expectations are central to investment analysis and corporate valuation. Despite a dominant effect on firm value, the academic literature and practitioner conventions provide little guidance on how this long-term growth rate should be determined. This paper takes a step in addressing this gap: we estimate the relation between long-term growth and an extensive selection of firm, industry, and market characteristics. Market prices do not seem to fully capture long-term growth information. Cross-sectional tests yield substantial positive abnormal returns for firms with high expected long-term growth.

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