Abstract

http://ssrn.com/abstract=1998722
 
 

Citations



 


 



Market-to-Revenue Multiples in Public and Private Capital Markets


Christopher Story Armstrong


Stanford Graduate School of Business

Tony Davila


University of Navarra - IESE Business School

George Foster


Stanford Graduate School of Business

John R. M. Hand


University of North Carolina Kenan-Flagler Business School

April 8, 2011

Australian Journal of Management, Vol. 36, No. 1, 2011

Abstract:     
The behavior and determinants of market-to-revenue ratios in public and private capital markets is examined. Three samples are analysed: (1) all publicly traded stocks listed at some time on the New York Stock Exchange/American Stock Exchange/National Association of Securities Dealers Automated Quotation System in the 1980—2004 period; (2) sample of over 300 so-called ‘internet companies’ in the 1996—2004 period; and (3) over 5500 privately held venture capital-backed companies in the 1992—2004 period. Both company size and the most recent revenue growth rate are found to explain significant variation across companies in their market-to-revenue multiples — smaller companies and companies with higher recent revenue growth rates have higher multiples. We also document how the capital market appears to use a broad-based information set when setting market-to-revenue multiples for companies with negative revenue growth rates — transitory revenue growth components appear to be identified (in a probabilistic sense) by the capital market. Contrary to much anecdotal comment, we present evidence that the capital market behaved directionally along the lines predicted by capital market theory in the pricing of internet stocks in the 1996—2004 period.

Keywords: internet companies, market-to-revenue multiple, price/sales ratio, private companies, public companies, transitory revenue, venture capital

Accepted Paper Series





Not Available For Download

Date posted: February 5, 2012  

Suggested Citation

Armstrong, Christopher Story and Davila, Tony and Foster, George and Hand, John R. M., Market-to-Revenue Multiples in Public and Private Capital Markets (April 8, 2011). Australian Journal of Management, Vol. 36, No. 1, 2011. Available at SSRN: http://ssrn.com/abstract=1998722

Contact Information

Christopher Story Armstrong
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
Antonio Davila
University of Navarra - IESE Business School ( email )
Avenida Pearson 21
Barcelona, 08034
Spain
George Foster (Contact Author)
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
650-723-2812 (Phone)
650-725-7979 (Fax)

John R. M. Hand
University of North Carolina Kenan-Flagler Business School ( email )
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-3173 (Phone)
919-962-4727 (Fax)

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