Empirical Tests of the Total Value Conservation Law of the Firm

5. Concluding Remarks

We have shown evidence that the assumption of a constant discount rate and profit-maximizing behavior of a firm is consistent with observed data for many of the top-performing firms in Japan during the period of 1980 through 2002. Although the results are tentative because of the limited data period and data availability, they suggest that it is promising to extend the notion of conservation laws to the industry or firm level.

The valuation of a firm is far from a simple and easy exercise. A measure related to a conservation law could be used together with traditional standards of measurement found in management, accounting and finance theory. Indeed, the multiplicative valuations may serve to further the understanding of corporate behavior.

From the viewpoint of the integration of optimization theory and uncertainty surrounding corporate decision making, the model under uncertainty is of interest. Toward this end, the “variable” discount rate case could be examined in more detail and developed to allow empirical investigations.