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

Nel, W. S.
Bruwer, B. W.
Le Roux, N. J.
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Clute Institute
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%.
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
Equity method (Accounting) -- South Africa, Business enterprises -- Valuation -- South Africa, Equity-based multiples, Entity-based multiples, Valuation accuracy, JSE Securities Exchange South Africa
Nel, W.S., Bruwer, B.W. & Le Roux, N.J. 2013. Equity- and entity-based multiples in emerging markets: Evidence from the JSE Securities Exchange. The Journal of Applied Business Research, 29(3): 829-852.