Equity Valuation Using Multiples: An Empirical Investigation

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IVForewordframework. Schreiner demonstrates quite a number of results such as (1) the use ofmarket capitalization as market price variable in the numerator of a multiple; (2) theconsideration of knowledge-related variables in science-based industries; (3) theincorporation of forward-looking information; and (4) the usage of a preferably fineindustry definition. For a selection of five key industries, Schreiner finds empiricalsupport for the existence of industry-preferred multiples when using trailing multiplesand for the usefulness of the two-factor model.With his work, <strong>An</strong>dreas Schreiner makes an influential contribution to the theoryand practice of corporate valuation using multiples. The straightforwardness ofthe underlying framework and the empirical results make the book an importantreference for practitioners. I recommend this book to professionals in corporate financeand equity research, and wish that it wins the broad readership it deserves.Dr. Klaus SpremannProfessor and DirectorSwiss Institute of Banking and Finance
PrefaceReviewing my time as a research associate makes me feel as if a dream hadturned into reality. This dream combined unique learning experiences on both anacademic and a personal level with full enjoyment and diversity of life. Within thedream, there have been many people, whom I want to thank for helping me in oneway or the other during the last three years. Foremost my deepest gratitude goes toProfessor Klaus Spremann, my advisor and academic teacher. He gave me the requiredinspiration and guidance to explore my potentials and utilize them in thisbook. My working experience with him as an assistant and as a research associate atthe Swiss Institute of Banking and Finance at the University of St.Gallen exceededall my expectations: he taught me the economics of corporate finance and portfoliomanagement in his books and seminars as well as in our conversations and meetings.I learned from him to approach challenging tasks with the right attitude andexperienced what it means to grow with confidence and responsibility.Profound gratitude also goes to Professor Thomas Berndt, who spontaneouslyagreed to supervise my work as a co-adviser. His enthusiasm and thoughts sparkedmy interest in many areas of accounting and made him a great mentor. Likewise, Iam very grateful to Professor Pascal Gantenbein. He initiated my passion for theworld of finance when I arrived as a master student at the University of St.Gallen in2004, and since then advised, encouraged, and supported me at any time in variousaspects of life.Within the twelve-month period as a visiting researcher at the <strong>An</strong>dersonSchool of Management at UCLA and the Yale School of Management in2006/2007, the quality and substance of my research gained enormously from thefaculty input I received from Professor Jing Liu, Professor David Aboody (bothUCLA), and Professor Jacob Thomas (Yale). Special thanks also goes to Dean AlOsborne, Dean Eric Mokover (both UCLA), and Professor Subrata Sen (Yale) formaking this unforgettable experience possible. Financial support for this researchvisit by the Swiss National Science Foundation is gratefully acknowledged.Changing environments and the speed of life pose a challenge for friendshipsand relationships. Notwithstanding, I enjoyed grand benevolence and encourage-
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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 38 and 39: 20 Literature reviewthe other. Chen
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36 Theoretical foundationsRI D Bequ
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38 Theoretical foundationsFigure 3.
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40 Theoretical foundationsThe loose
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42 Theoretical foundationscomings,
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44 Theoretical foundationsability c
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46 Theoretical foundationsposure to
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4 Comprehensive multiples valuation
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50 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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Equity Valuation Using Multiples: An Empirical Investigation

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