Mean Reversion in Earnings and the Use of E/P Multiples in Corporate Valuation
LECG, LLC; University of California, Berkeley - Haas School of Business
David J. Denis
University of Pittsburgh
Santa Clara University - Department of Finance
Journal of Applied Finance, Vol. 14, No. 1, Spring/Summer 2004
We analyze how E/P multiples are affected when firms experience an unusual change in earnings. Those firms with earnings changes that are below the industry median have E/P ratios that are also below the median. Conversely, those firms with earnings changes above the median have E/P ratios that are above the industry median. We conclude that current earnings have an economically important impact on industry-adjusted E/P ratios.
Number of Pages in PDF File: 7
JEL Classification: G12, G14Accepted Paper Series
Date posted: January 10, 2005
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