Third, soft budget constraints are more likely to arise when the liquidation value
of a project is smaller and the return from the project and its success probability are larger.
The estimated liquidation values
of the liabilities are subtracted from the estimated proceeds to arrive at an estimated net proceeds amount.
Instead of focusing on liquidation values
, the reader of the typical financial statement would probably be much better served by seeing an estimate of the price-per-share value of the sponsor as if it were offered for sale as a continuing enterprise.
Stumpage value is the market price for standing timber ready for immediate harvest (also called timber liquidation value
If critics complain that today's historical cost-based financials don't provide adequate information to users of financial statements, what will those same critics say if they're given reproduction cost information when they want liquidation values
, or vice versa?
If some firms underestimate liquidation values
, we would also expect to find that the excess return assuming costless liquidation is negatively related to the gap between going-concern value and liquidation value
"6" Borrowing base exceeds net liquidation values
As a result you have liquidation values
being presented by appraisers in the guise of market value."
On the other hand, fair value measurements could approximate liquidation values
for some assets and liabilities, but not others (e.g., any probabilistically weighted estimate).
The market-to-book ratio is designed to estimate the relation between going concern and liquidation values
, where the book value of assets is used as a proxy for the liquidation value
of the firm.
Most commentators believe that the proper valuation approach for this purpose is a "going concern" approach, as opposed to using liquidation values
. To determine going concern value, the prevailing view appears to be that the FMV of the debtor's assets should include tangible assets, as well as goodwill and other intangible assets (e.g., patents and trademarks).(7) However, some commentators advocate the use of a valuation approach that essentially measures the replacement value of only hard assets.(8) The problem with the replacement value approach to insolvency valuation is that it values the individual assets and liabilities of a business, rather than the whole business as an ongoing enterprise.
in a specific case will generally vary from the fair market values found in appraisals because of the specific circumstances unique to a particular plan of disposal.