Equity- and entity-based multiples in emerging markets : evidence from the JSE Securities Exchange

Nel, W. S. ; Bruwer, B. W. ; Le Roux, N. J. (2013-05)

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

The original publication is available at http://journals.cluteonline.com/index.php/JABR


Analysts typically distinguish between equity- and entity-based approaches when employing the free cash flow model to perform equity valuations. However, when multiples are used to perform equity valuations, analysts often neglect to distinguish between equity- and entity-based approaches. In addition, limited empirical evidence exists on the relative valuation performance of equity- and entity-based multiples in developed capital markets and the emerging markets literature is entirely silent in this regard. In this paper the valuation accuracy of equity-based multiples is compared to that of entity-based multiples in valuing the equity of South African companies listed on the JSE Securities Exchange for the period 2001-2010. The research results reveal that equity-based multiples significantly outperform entity-based multiples, indicating a potential increase in valuation accuracy of as much as 15.37%.

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