SSE Working Paper Series in Business Administration,
Stockholm School of Economics

Abstract: HQ was a medium-sized Swedish banking group whose banking and fund management licenses were revoked in 2010, after losses in trading in equity derivatives for its own account. The parent company of the HQ group sued the board members and the audit firm and the responsible auditor for damages. NN was an expert witness for plaintiff and submitted a DCF valuation of HQ in a but-for scenario, where the banking group would have survived. This valuation is an interesting example of choice of valuation model assumptions to obtain a specific result, i. e., calibration. The nature of the calibration depends on the purpose of the model. Two possible purposes of a DCF model used by an expert for plaintiff are mentioned, maximizing the but-for value, and legitimizing a value that has been set in advance based on other considerations. From an analysis of unusual evidence that is contained in the DCF valuation model for HQ, it appears that the purpose of that model was to legitimize a value that had been set in advance. The author served as expert witness to defendant, with the task of rebutting NN. This paper is based on expert reports by NN and the author.

Keywords: Valuation; litigation; DCF model; calibration; dueling experts; legitimation

JEL-codes: G21; G33; M41

23 pages, First version: May 28, 2019. Revised: October 10, 2019. Earlier revisions: August 26, 2019, August 26, 2019, August 26, 2019, October 9, 2019, October 9, 2019.

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