A Note on the Valuation of Asset Management Firms

22 Pages Posted: 2 Sep 2015 Last revised: 21 Dec 2018

See all articles by Juha Joenväärä

Juha Joenväärä

Aalto University School of Business

Bernd Scherer

EDHEC Business School - Department of Economics & Finance

Date Written: December 31, 2016

Abstract

Market capitalization relative to assets under management is a metric often used to value asset management firms. The dividend discount model of HUBERMAN (2004) implies that cross-sectional variations in this metric are explained by cross-sectional differences in operating margins, yet that does not accord with the evidence from our data set. We show that a superior model – inspired by the work of BERK/GREEN (2004) – includes also the level of fees as an explanatory variable. This approach dramatically increases the fit of our valuation model and casts doubt on the relevance of the so-called Huberman puzzle.

Keywords: Asset manager, Valuation, Operating Margins

JEL Classification: G14

Suggested Citation

Joenvaara, Juha and Scherer, Bernd, A Note on the Valuation of Asset Management Firms (December 31, 2016). Available at SSRN: https://ssrn.com/abstract=2653703 or http://dx.doi.org/10.2139/ssrn.2653703

Juha Joenvaara (Contact Author)

Aalto University School of Business ( email )

Finland

Bernd Scherer

EDHEC Business School - Department of Economics & Finance ( email )

France

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