ABSTRACT
As Mortimer observed in the 18th century, unlike fixed income debt securities, the cash flows associated with equity capital shares are typically much less predictable, making valuation a more uncertain exercise. In modern times, common stock valuation is complicated by numerous factors involved in the estimation of firm cash flows, which, in turn, involve qualitative variables such as market conditions and other fundamentals of the business. This valuation process is impacted by an agency problem brought on, at least partly, by the separation of ownership and control embodied in the modern limited liability corporation with autonomous, exchange-traded equity capital shares. Given this, joint-stock valuation in the 18th century differed significantly from modern common stock valuation. In the 18th century, accurate accounting information was scarce and fragmentary; and shares were not ‘autonomous’. The limited number, quality and type of joint-stock shares traded meant modern portfolio diversification opportunities were unavailable.
