The impact of industry classification on the valuation accuracy of multiples in the South African capital market

Nel, Soon ; Bruwer, Wilna ; Le Roux, Niel (2013-01)

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Publication of this article was funded by the Stellenbosch University Open Access Fund.


Although multiples are used extensively in practice, empirical guidance in emerging markets is limited in this regard. In terms of valuation accuracy, the impact of peer group selection by way of industry classification in emerging markets has not yet been substantiated by research. This paper investigates the valuation performance of multiples over various industry classifications when valuing the equity of South African companies listed on the Johannesburg Stock Exchange for the period 2001 to 2010. The empirical results revealed that peer group selection based on a narrower industry classification could, on average, increase valuation accuracy by as much as 19.60%.

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