BV551 The Company-Specific Risk Premium - Identification and Quantification

Class Date/Time

Tuesday, June 17, 2025
1:00pm-2:30pm Eastern Standard Time

Registration Includes

• Access to virtual webinar via zoom will be accessible via education dashboard (login required)
• Electronic webinar handout(s)*

*Any webinar handouts will be made available to registrants the morning of the live event and made accessible via your education dashboard (login required). Once handouts have been posted for download, the class is no longer refundable. 

Continuing Education (CE) Credit

This webinar will award 1.8 CE/CPE hour(s) for the live event. If you are a designated member of ASA, CE credit will automatically be entered into your record after you participate in the live webinar and complete any required post-webinar components within the Course Wrap-up section.  

NASBA and Continuing Professional Education (CPE) Credit

Policies: ASA's Refund and Cancellation Policy and ASA's Complaint Resolution Policy. ASA is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have the final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website www.learningmarket.org

CPE Credit: Up to (1.8) CPE credits
Program Level: Intermediate
NASBA Knowledge Type: Specialized Knowledge
Delivery Method: Virtual
Prerequisites: None
Advanced Preparation: None 

Webinar Description

Common practice among practitioners in estimating discount rates has evolved into searching databases for guideline public companies (GPCs) and selecting a median as representative of the appropriate beta for a subject company, often without investigating that drive differences among the estimated betas and then applying a unsupported company-specific risk premium. This webinar will investigate reasons for differences in beta estimates among GPCs and how studies can be used to adjust observed beta estimates  for characteristics of the subject company that differ from the GPCs. The goal is to understand differences and how market betas differ because of  those differences. We will examine empirical data on non-beta company risk differences, how market returns reflect those differences, and how that data can be used to adjust discount rates for risk differences. We will also  review recent literature of company-specific risk factors and how differences in those risk differences impact empirically observed prices and expected returns. Finally, we will review practical steps that can be taken in developing company-specific rates of return.

Recommended Pre-Reading(s)

(1) Valuing a Business 6th Edition. “Estimating the Discount Rate for Smaller Closely Held Businesses,” Chapter 11, online appendix Valuing a Business (here)
(2) Feldman, Stan and Todd, “Understanding the Firm Specific Risk Premium,” Journal of Business Valuation and Economic Loss Analysis 18 (1): 1-22
(3) Cooper, Lauren A., James A. DiGabriele, Richard A. Riley, Jr., Trevor L. Sorensen, “Company-Specific Risk and Small Company Valuation,” Journal of Forensic Accounting Research Vol. 6 (1) (2021): 33-56

Instructional Methods

Methods include lecture, visual PPT presentation and polling questions. 

Course Audience

Valuation practitioners and analysts who develop discount rates for valuing closely held/non-publicly traded businesses

Learning Level 

Intermediate

1. Criticisms of current practice in developing company-specific risk premiums (CSRP)
2. Differences in practitioner approaches to estimating cost of equity capital and approaches of academics
3. What to do before applying any CSRP
   1. Build-up method inputs:
      • i.      Adjust public company risk premium estimates for difference in leverage
      • ii.      Adjust for excess cash and non-operating assets
      • iii.      Adjust for differences in operating leverage
      • iv.      Adjust risk premium estimates for differences in industry risk
   2. MCAPM inputs:
      • i.      Examining factors that cause differences in betas among guideline public companies (GPCs)
      • ii.      Adjust for differences in leverage
      • iii.      Adjust for excess cash and non-operating assets
      • iv.      Adjust for differences operating leverage
      • v.      Adjust for differences in customer concentration and diversification
      • vi.      Adjust for differences in expected growth
4. Using CSRP to adjust for biased cash flow forecasts
5. Estimating discount rates for smaller non-publicly traded businesses – recent research
6. Implementing an improved work plan for estimating discount rates

Upon completion of this course, students will be able to:

• Identify differences in risks among guideline public companies (GPCs) in same industry; Analyze adjustments to GPC beta estimates for various risks; 
• Develop adjustments to GPC beta estimates to better match the risks of a subject closely held/non-publicly traded business; 
• Interpret research on company-specific risk factors priced by the market; and
• Integrate these factors into a work plan to improve estimates of discount rates.

eMaterials

All course materials included with you registration are PDF Download Only items made available to students prior to the start of the class and are not for resale or distribution. All downloadable materials are accessible via your education dashboard (login required). Once eMaterials have been posted for download, the class is no longer refundable.

Accessing eMaterials

eMaterials are provided electronically in PDF format and posted to the class the morning of the live event and listed within the education dashboard for all registrants to securely access prior to the start of the webinar. When opting to print downloadable materials, it is recommended that settings be adjusted to print in black and white (or grayscale) and consider printing double-sided on recycled paper.

Certificate of Completion

A certificate of completion will be available to view and/or download immediately via your education dashboard once all required components are completed.