International Equity Valuation: The Relative Importance of Country and Industry Factors Vs. Company-Specific Financial Reporting Information
Accounting and Finance, Wiley-Blackwell, 2012
53 Pages Posted: 28 Oct 2011 Last revised: 4 Nov 2011
Date Written: April 11, 2011
The relative importance of country- and industry-specified factors vis-à-vis company-specific financial-statement-based information in explaining equity valuation multiples in an international setting is examined. Both country-specific effects via previously identified variables and an indicator variable approach are analyzed. While company-specific factors are predominant in explaining cross-sectional differences in valuation, country and industry factors have sizable incremental explanatory power over them; the latter are not independent so their relative importance is influenced by how we adjust for this commonality. Using country-indicators provides larger incremental explanatory power than using country-specific factors suggesting that previously identified factors may be measured with sizeable error or omitted factors are important.
Keywords: Accounting harmonisation, Financial reporting, International equity valuation, Country factors, Industry factors
JEL Classification: M41, G12, G14
Suggested Citation: Suggested Citation