Equity Valuation Using Multiples: An Empirical Investigation

Introduction 9deals with the tradeoff between the similarities and idiosyncrasies of different industrydefinitions.• Research question 8: Does a finer industry definition – smaller but more homogenouspeer group – improve the valuation accuracy of multiples?Practitioners frequently apply industry-preferred multiples in their valuations.From a theoretical perspective this makes sense (Loderer et al. 2005, p. 770), however,with the exception of von Berenberg-Consbruch (2006) no empirical evidenceon the valuation accuracy of industry-preferred multiples is available. Researchquestion 9 addresses this lack of empirical research.• Research question 9: Does the valuation accuracy of different multiples dependon the industry membership of the firm being valued?The final research question takes on the two-factor multiples valuation modelintroduced in research question 3. Even if the model turns out to be meaningfulfrom a theoretical point of view, two additional problems must be addressed empirically.First, by applying two different peer group multiples to a target firm, wetypically end up with two different valuation results. If we attempt to systematicallycombine the two results, we must put certain weights on each result (i.e., multiple).Identifying both the appropriate two multiples and their weights in different industriesrequires empirical research. Second, the usefulness of the two-factor multiplesmodel depends on its performance compared to the simple one-factor multiples approach.• Research question 10: Do valuations which combine information from bookvalues and earnings into a two-factor multiples valuation model outperformvaluations based on single multiples in a one-factor multiples valuation modelin terms of valuation accuracy?The three research questions for the theoretical part come in a conceptualframework. As explicit research hypotheses for these questions would limit the