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The Relationship Between Non-additivity Valuations, Cash Flows and Sales Growth

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Abstract

This study examines the effects of non-additivity valuations on cash flows and sales growth by using the Choquet fuzzy approach as a pooled non-additive integral. The study targets 62 parent companies with 322 subsidiaries in the Tehran stock market from 2011 to 2019. The study divides firms' assets into four categories (inventories, receivables, fixed, and long-term investments). It uses the Choquet integral's properties to determine the firms' total non-additivity values. The Choquet integral approach used in this study considers the synergy of a set's componential factors in different measurements by considering and implementing the weights and coefficients of the elements. The results indicate that while the market valuation of companies (based on non-additivity valuations) has no significant correlation with their operating cash flows, it has a positive correlation with their sales growth, which could be attributed to the synergy created by the business combination of the parent companies with their subsidiaries. Moreover, the findings show a significant correlation between sales growth and the market price-to-book ratio as a simple approach to measuring a company's performance. However, the results suggest that non-additivity valuations offer a better estimation in measuring the efficiency of companies than market price-to-book ratio-based approaches. Indeed, the valuations of companies are determined based on their abilities in using their resources compared to similar companies in the same industry when they use non-additivity valuations. These findings are expected to be very helpful for potential investors and shareholders.

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Data Availability

Data is publicly available on the Tehran stock market.

Notes

  1. Should the order of assets’ value be different in another company, different Choquet capacities will be used. For instance, if their relationship is f(A) < f(B) < f(C), then the Choquet capacities would include µ (A, B, C), µ(B, C), and µ(B).

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Authors and Affiliations

  1. Faculty of Economics and Administrative Sciences, Ferdowsi University of Mashhad, Mashhad, Iran

    Maryam Eghbal & Farzaneh Nassirzadeh

  2. Department of Accounting and Finance, The University of Auckland, Auckland, New Zealand

    Davood Askarany

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  1. Maryam Eghbal
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  2. Farzaneh Nassirzadeh
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Contributions

Conceptualisation, methodology, software, validation, formal analysis, investigation, resources, data curation, and preparing original draft: ME and FN. Writing—review and editing and revision, and administration: DA and FN. All authors have read and agreed to the published version of the manuscript.

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Correspondence to Farzaneh Nassirzadeh.

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Eghbal, M., Nassirzadeh, F. & Askarany, D. The Relationship Between Non-additivity Valuations, Cash Flows and Sales Growth. Comput Econ 64, 429–459 (2024). https://doi.org/10.1007/s10614-023-10435-x

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