Projection bias in tender offer valuation reports

Objective: To examine whether, in tender offer valuation reports that apply the Discounted Cash Flow (DCF) method, five variables related to the issuance context contribute to explaining the overvaluation or undervaluation of projected economic–financial performance relative to the performance actually achieved. Method: Multiple linear regression models were used for the main analysis. Additionally, decision tree and ridge regression models were estimated, although their results did not exceed those presented in this study. A binary model, also estimated as a supplementary procedure, confirmed the findings reported here. Confirmatory results were likewise obtained for the fee model using correspondence analysis. Results: The findings demonstrate that the short-term difference between projected and actual performance is significant, indicating the presence of projection bias. This bias is explained by the tender offer modality and the industry of the firm being valued. The amount paid to the appraiser as fees was not significant in explaining this bias. Contributions: Research on business valuation remains scarce in emerging countries. From a practical standpoint, evidence comparing projected and actual values ​​contributes to users’ perceptions of valuation reports and to improving the performance and quality of the valuation process.