A new approach to financial valuation, international accounting standards, and prudential standards
The EDHEC Financial Analysis and Accounting Research Centre was created in 2006 around the themes of company valuation and management; featuring prominently in the context of the creation of the Centre were new accounting (IFRS, US GAAP) and new prudential rules (Solvency II and Basel III).
Today, cultural and technological changes allow multiple dynamic analyses in several areas, the cornerstone of which is the discount rate: risk is the essential element. A profound change has been underway for a decade now; the aim of the change is to improve stakeholders' views of the risks actually taken by companies. Faced with increasingly complex risks, accounting and prudential standards (IFRS, US GAAP, Solvency II, and Basel III) are undergoing a complete revision. These reforms have an impact on the management of financial or non-financial firms (enterprise risk management, economic capital models, management control, internal control, and so on).
There may be a large body of research into the determination of the discount rate in general and on risk more particularly, but the gap between academe and the business world seems to be growing wider by the day. In practice, those who do the valuations often oversimplify, invalidating their reasoning; they may even ignore theory and transform the discount rate into a black box to hide the absence of objective and academic foundations for the determination of the risk premium and of beta.
The aim of the EDHEC Financial Analysis and Accounting Research Centre is to shed new light on risk integration (the impact on management, strategy and financial communication, valuation, and discount rates) and to recommend new practical solutions of management in general as well as methods suited to the frameworks for accounting and prudential standards.
The great diversity of backgrounds is one of the advantages of the research centre (specialists in financial analysis, in corporate finance, in accounting on one hand and from academe or from business on the other), and it allows the centre to take a multi-disciplinary approach to company valuation and management: the impact of IFRS on risk valuation and risk pricing; the impact of IFRS and Solvency II on insurance company management; bank-insurance and optimal capital allocation; the financial structure of family firms and cost of capital; optimisation of steering tools (internal control, management control, enterprise risk management, market-consistent embedded value, asset/liability management, economic capital).
The EDHEC Financial Analysis and Accounting Research Centre is working on five research programmes:
1. Determination of the cost of capital
2. Impact of IFRS on company valuation
3. Family firms, financing structure and governance
4. Enterprise risk management, economic capital, management control, and internal control within the new accounting and prudential frames of reference
5. Bankruptcy modelling and company valuation
The mission of the EDHEC Financial Analysis and Accounting Research Centre is also to accompany businesses in a tailor-made implementation of the Centre's research results and thus to offer consulting and financial engineering services.