Fundamental valuation of extra-financial information

Abstract

We augment seminal models based on Ohlson (1995) by integrating the value impact of ratings related to three different extra-financial categories, i. e. corporate governance, human capital, and innovation capital. By integrating extra-financial information in valuation models, we examine whether current market values can be better estimated and future stock performance better predicted when considering this information. For a sample of large European public firms, we find that a model including human capital information and analysts' earnings forecasts best explains current stock prices. Our model based on human capital information (without analysts' forecasts) best identifies under- and overvalued companies.