A Crisis-Adjusted Valuation Model for Financial Firms: Empirical Evidence from Mexico during COVID-19
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This study proposes an adjusted valuation model for systemic health crisis contexts to more accurately estimate the intrinsic value of Mexican financial firms during the COVID-19 pandemic. A quantitative approach is applied using two methods: a free cash flow to equity (FCFE) model with specific adjustments to projected cash flows and discount rates, and an asset-based valuation as a conservative benchmark. The sample includes eight firms listed on Mexico’s Índice de Precios y Cotizaciones (IPC)—Price and Quotation Index. Intrinsic values are compared to market prices at two key moments: March 2020 and March 2022. The findings reveal a general undervaluation trend in 2020 and an overvaluation trend in 2022, consistent with behavioral finance theories regarding investor reactions to uncertainty. The adjusted model effectively captures the economic impact of health crises, offering a replicable tool for financial valuation in non-standard environments. This research contributes to the literature by demonstrating how valuation frameworks can be adapted to account for exogenous shocks in emerging markets.
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