Equity- and entity-based multiples in emerging markets : evidence from the JSE Securities Exchange
Date
2013-05
Authors
Nel, W. S.
Bruwer, B. W.
Le Roux, N. J.
Journal Title
Journal ISSN
Volume Title
Publisher
Clute Institute
Abstract
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%.
Description
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
The original publication is available at http://journals.cluteonline.com/index.php/JABR
Keywords
Equity method (Accounting) -- South Africa, Business enterprises -- Valuation -- South Africa, Equity-based multiples, Entity-based multiples, Valuation accuracy, JSE Securities Exchange South Africa
Citation
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.