Mean Reversion in Earnings and the Use of E/P Multiples in Corporate Valuation

7 Pages Posted: 10 Jan 2005

See all articles by Mukesh Bajaj

Mukesh Bajaj

LECG, LLC; University of California, Berkeley - Haas School of Business

David J. Denis

University of Pittsburgh

Atulya Sarin

Santa Clara University - Department of Finance

Abstract

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.

JEL Classification: G12, G14

Suggested Citation

Bajaj, Mukesh and Denis, David J. and Sarin, Atulya, Mean Reversion in Earnings and the Use of E/P Multiples in Corporate Valuation. Available at SSRN: https://ssrn.com/abstract=561001

Mukesh Bajaj

LECG, LLC ( email )

2000 Powell Street, Suite 600
Emeryville, CA 94608
United States
510-450-6736 (Phone)

University of California, Berkeley - Haas School of Business

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

David J. Denis (Contact Author)

University of Pittsburgh ( email )

Katz Graduate School of Business
Pittsburgh, PA 15260
United States
412-648-1708 (Phone)

Atulya Sarin

Santa Clara University - Department of Finance ( email )

Leavey School of Business and Administration
Santa Clara, CA 95053
United States
408-554-4953 (Phone)
408-904-4498 (Fax)

HOME PAGE: http://business.scu.edu/asarin

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