Equity Valuation Using Multiples: An Empirical Investigation

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20 Literature reviewthe other. Cheng and McNamara (2000) also find that only the industry membership– although using SIC codes – is necessary to define the peer group for the combinedP/E-P/B model.For a similar sample, Beatty, Riffe & Thompson (1999) examine differentmethodologies for how to actually combine P/E and P/B multiples. They show thatcalculating industry specific weights for P/E and P/B is superior to relying on equalweights, but, unfortunately, they present their results only in aggregated form. Thus,it is not possible to determine the industry specific weights. In contrast to the promisingresults of Cheng & McNamara (2000) and Beatty, Riffe & Thompson (1999),a combination of two or even more multiples indicates only modest improvementsin the valuation accuracy over that obtained for forward-looking P/E multiples inLiu, Nissim & Thomas (2002a and 2005b).2.3 Contribution to prior researchSince most standard textbooks and papers focus on isolated aspects of the multiplesvaluation method, the literature review presents a fragmented picture of theresearch conducted so far. What is more, the quite diverse empirical results, whichare primarily caused by differences in the research methodology and setting, hardlyallow a synthesis of the studies.This book contributes to the existing literature in several ways. In the followingchapter, it shows theoretical interconnections between fundamental equityvaluation models and selected multiples to substantiate the existence of the multiplesvaluation method. Chapter 3 also forms the basis for the advancement of thestandard multiples approach where I coalesce and extend the literature with respectto practitioners’ needs and develop a comprehensive framework for using multiplesin valuation practice.The empirical study is based on a broad dataset of European and U.S. equitymarkets. The choice of this dataset is beneficial for two reasons. On one hand, theincorporation of European data overcomes the U.S. bias, which is typical for empiricalmarket research. On the other hand, the concomitant consideration of U.S.data allows the comparison of my results with those of existing studies. Moreover,the book examines both crucial aspects of the multiples valuation method, the selec-
Literature review 21tion of value relevant measures and the identification of comparable firms, not onlyfor the cross-section, but also on an industry level for European and U.S. key industries.More precisely, the empirical study clarifies research questions concerningequity value versus entity value multiples (research question 5), alternative versustraditional multiples (research question 6), forward-looking versus trailing multiples(research question 7), the fineness of the industry definition to form a suitable peergroup (research question 8), the existence of industry-preferred multiples (researchquestion 9), and one-factor versus two-factor multiples valuations (research question10). I also address the valuation accuracy of the multiples method in general(research question 4) and test the stability of valuation accuracy over time.
Page 1 and 2: Equity Valuation Using Multiples:An
Page 4 and 5: IVForewordframework. Schreiner demo
Page 6 and 7: VIPrefacement from my friends, whic
Page 8 and 9: Brief contents1 Introduction ......
Page 10 and 11: ContentsForeword...................
Page 12 and 13: XIIContents4.5 Actual valuation....
Page 14 and 15: List of figures 1Figure 1.1: Valuat
Page 16 and 17: Notations and abbreviationsPrice an
Page 18 and 19: XVIIINotations and abbreviationsM&A
Page 20 and 21: 2 Introductiongroup multiples must
Page 22 and 23: 4 Introductionexpenditures, amortiz
Page 24 and 25: 6 Introductiontion, therefore, aims
Page 26 and 27: 8 Introduction• Research question
Page 28 and 29: 10 Introductionscope of the solutio
Page 30 and 31: 12 IntroductionFigure 1.2: Outline
Page 32 and 33: 14 Literature reviewto earnings gro
Page 34 and 35: 16 Literature reviewserved market v
Page 36 and 37: 18 Literature reviewmultiple for ea
Page 40 and 41: 3 Theoretical foundationsShareholde
Page 42 and 43: 24 Theoretical foundationsferred to
Page 44 and 45: 26 Theoretical foundationswherev is
Page 46 and 47: 28 Theoretical foundationsholders a
Page 48 and 49: 30 Theoretical foundationsOhlson (2
Page 50 and 51: 32 Theoretical foundationsget firm'
Page 52 and 53: 34 Theoretical foundationsIn order
Page 54 and 55: 36 Theoretical foundationsRI D Bequ
Page 56 and 57: 38 Theoretical foundationsFigure 3.
Page 58 and 59: 40 Theoretical foundationsThe loose
Page 60 and 61: 42 Theoretical foundationscomings,
Page 62 and 63: 44 Theoretical foundationsability c
Page 64 and 65: 46 Theoretical foundationsposure to
Page 66 and 67: 4 Comprehensive multiples valuation
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70 Comprehensive multiples valuatio
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5 Design of the empirical studyThe
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86 Design of the empirical studytio
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88 Design of the empirical studypir
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90 Design of the empirical study5.3
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92 Design of the empirical studyCha
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94 Design of the empirical studyand
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96 Design of the empirical studyass
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6 Empirical resultsThe following ch
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100 Empirical resultsous multiples
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102 Empirical resultsvalue multiple
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104 Empirical results6.1.3 Knowledg
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106 Empirical resultsknowledge-rela
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108 Empirical resultsTable 6.4: Per
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110 Empirical results6.1.5 The effe
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112 Empirical resultsThe second tes
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114 Empirical results6.2.1 Industry
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116 Empirical resultsExamination of
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118 Empirical resultscoefficients a
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120 Empirical results• The simple
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122 Empirical resultsTable 6.11: Co
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124 Empirical resultshowever, lapse
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126 Empirical resultsoped equity ma
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128 Conclusionmultiples, in particu
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130 Conclusion7.3 Research outlookE
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132 Appendix A: ICB industry classi
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134 Appendix A: ICB industry classi
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136 Appendix B: U.S. evidenceEquity
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138 Appendix B: U.S. evidencePerfor
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146 Appendix B: U.S. evidenceIndust
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148 Appendix B: U.S. evidenceFactor
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150 Appendix B: U.S. evidenceTime s
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152 Appendix C: Definition of varia
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ReferencesAboody, D., 2006. Financi
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156 ReferencesBernard, V.L., Thomas
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158 ReferencesDamodaran, A., 2001.
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160 ReferencesFama, E.F., 1976. Fou
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162 ReferencesGuo, R.-J., Lev, B.,
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164 ReferencesLev, B., Nissim, D.,
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166 ReferencesO’Hanlon, J., Peasn
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168 ReferencesRoss, S.A., Westerfie
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Curriculum VitaeName:Born:Andreas S
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