Market and Transaction Multiples’ Accuracy in the European Equity Market

International Journal of Business and Social Science Vol. 7, No. 5; May 2016

8 Pages Posted: 14 Feb 2019

Date Written: February 2016

Abstract

In spite of their widespread use in practice, accounting-based multiples are subject of few academic studies. This paper investigates market and transaction multiples’ accuracy in corporate equity valuation by considering a sample of listed companies which are assumed to be private and evaluated according to accounting-based multiples. Since equity valuation is particularly challenging under stressed conditions, it focuses on the core period of the recent financial crisis. Results show that transaction and market multiples perform very poorly at least during financial turmoil, i.e. under the most uncertain information condition, and those relevant firm specific adjustments are necessary. Specifically, equity valuation based on multiples entails measurement errors which tend to overestimate fundamental values and to lead to more results that are volatile.

Keywords: Corporate Valuation, Market Multiples, Transaction Multiples, Financial Reporting

JEL Classification: G30, M40

Suggested Citation

Palea, Vera, Market and Transaction Multiples’ Accuracy in the European Equity Market (February 2016). International Journal of Business and Social Science Vol. 7, No. 5; May 2016, Available at SSRN: https://ssrn.com/abstract=3328811

Vera Palea (Contact Author)

University of Turin ( email )

Turin - Piedmont

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
53
Abstract Views
711
rank
437,448
PlumX Metrics