Conceptual model of valuation effects based on inter-firm relationship

Abstract

Close ties may exist between firms due to legal (such as parent–subsidiary), financial (such as trade-credit), or business (such as supplier-customer, competitor, partner) and other relationships. Due to these kinds of fundamental interfirm relationships between entities and to the propagation of information, there are some correlations between stocks valuations exist. In this paper, a conceptual model is proposed to help shareholders, analysts, and portfolio managers to search for candidate firms affected by a financially distressed firm and analyze possible valuation effects based on inter-firm connection.