Market and Transaction Multiples’ Accuracy in the European Equity Market
Vera Palea
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 firmspecific
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.
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