The relationship between firm's value obtained using modigliani and miller, dividend valuation, earnings valuation and that given by market capitalization model
The main objective of this research is to establish whether there is any relationship between firm's value obtained using Modigliani and Miller, Dividend valuation and Earning valuation models and that given by Market capitalization model. The information sought for the study was obtained from the Nairobi Security Exchange Secretariat and published annual financial statements population of 51 companies listed on Nairobi Security Exchange. Out of the population, complete information on 26 companies was obtained, analyzed and have provided the information used in this report. The findings were that the market capitalization values were compared with the Modigliani & Miller values and regressed to bring out any relationship if there and it resulted in an r2 of 0.074 within a confidence level of 97%. The market capitalization when compared with Earnings valuation model resulted in r2 of 0,081 and when compared with the dividend valuation model it resulted into r2 of 0.115 being better than the other two models. Its therefore concluded that the test of significance carried out to determine whether there was significant relationship between market capitalization model and the other three valuation models, with the P-values of 0.657 for Modigliani & Miller show that the difference was significant hence not a good indicator of Market Capitalization Model. Dividend Valuation Model had P-value of 0.643 showing that its not a good indicator of Market Capitalization Model, and Earnings Valuation Model too had a P-value of 0.576 showing the difference were significant hence not a good indicator of Market Capitalization Model. The recommendation from observation in this study is that when trying to arrive at a firm's value, it is imperative to have the value obtained from one model be collaborated by values from other models to achieve a better results and help the persons using the information e.g Investors,analysts and finance managers to make wise investment decisions.