International Equity Valuation: The Relative Importance of Country and Industry Factors Versus Company‐Specific Financial Reporting Information

48 Pages Posted: 9 Sep 2012

See all articles by George Foster

George Foster

Stanford Graduate School of Business

Ron Kasznik

Stanford Graduate School of Business

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting

Date Written: September 2012

Abstract

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 analysed. 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

Foster, George and Kasznik, Ron and Sidhu, Baljit K., International Equity Valuation: The Relative Importance of Country and Industry Factors Versus Company‐Specific Financial Reporting Information (September 2012). Accounting & Finance, Vol. 52, Issue 3, pp. 767-814, 2012. Available at SSRN: https://ssrn.com/abstract=2143493 or http://dx.doi.org/10.1111/j.1467-629X.2011.00423.x

George Foster (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-2812 (Phone)
650-725-7979 (Fax)

Ron Kasznik

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-725-9740 (Phone)
650-725-6152 (Fax)

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

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