Prior research, investigating the absolute performance of multiples as well as the relative superiority of different types of multiples, yields contradictory results that might be attributed to varying peer pool settings. This paper emphasizes on the technology sector and extends existing research, in its entirety being limited to trading multiples on listed companies, to transaction multiples on private firms. Employing a set of 22,967 observations on private market transactions of technology firms collected from 2000 until 2018, I examine the systematic impact of peer pooling on (i) the relative superiority of cross-sectoral multiples, (ii) the absolute superiority of sectoral multiples and, (iii) the absolute superiority of cross-sectoral multiples being segmented by various country-specific high-tech indicators. The multiples employed capture both, enterprise value and equity value multiples. The performance of the multiples in the various peer pool settings is evaluated according to bias as well as accuracy, utilizing the standard holdout routine on the transactions. The results indicate that (i) contradictory results in prior research on multiple’s bias may be strongly attributed to the varying peer pools employed, (ii) the enterprise value to total assets multiple clearly dominates across all peer pools on a cross-sectoral basis, indicating that contradictory results on multiple’s accuracy may not be attributed to the varying peer pools employed and, (iii) the performance of sectoral multiples depends on the value driver employed, showing only a weak relationship with the peer pool setting. Therefore, valuation analysts are recommended to utilize larger peer pools when employing cross-sectoral multiples, to emphasize on the enterprise value to total assets multiple, to further break down the high-tech sector into sub-sectors and, to employ sectoral multiples or multiples segmented according to country-specific high-tech indicators alternately.
| Published in | International Journal of Economics, Finance and Management Sciences (Volume 9, Issue 2) |
| DOI | 10.11648/j.ijefm.20210902.13 |
| Page(s) | 77-96 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2021. Published by Science Publishing Group |
Peer Pool, Peer Group, Multiple Performance, Transaction Multiples, Market Approach, Private Firms, Business Valuation, Technology Sector
| [1] | Lie E. and H. J. Lie (2002). Multiples used to Estimate Corporate Value. Financial Analysts Journal 58 (2): 44-54. |
| [2] | Deng M., Easton P. D., and J. Yeo (2012). Another Look at Enterprise and Equity Valuation Based on Multiples. Working Paper. |
| [3] | Nel S. W. (2009). The use of multiples in the South African equity market: is the popularity of the price earnings ratio justifiable from a sector perspective? Meditari Accountancy Research 17 (2): 101-115. |
| [4] | Nel S. W., Bruwer W., and N. Le Roux (2013). Equity- and Entity-Based Multiples in Emerging Markets: Evidence from the JSE Securities Exchange. Journal of Applied Business Research 29 (3): 829-851. |
| [5] | Harbula P. (2009). Valuation Multiples: Accuracy and Drivers Evidence from the European Stock Market. Business Valuation Review 24 (4): 186-200. |
| [6] | Herrmann V. and F. Richter (2003). Pricing with Performance-Controlled Multiples. Schmalenbach Business Review 55: 194-219. |
| [7] | Schreiner A. and K. Spremann (2007). Multiples and their Valuation Accuracy in European Equity Markets. Working Paper. |
| [8] | Chastenet E. and A. Marion (2015). Valuation Using Industry Multiples: How to Choose the Most Relevant Multiples. Business Valuation Review 34 (4): 173-183. |
| [9] | Bagna E. and E. C. Ramusino (2017). Market Multiples and the Valuation of Cyclical Companies. International Business Research 10 (12): 246-266. |
| [10] | Liu J., Nissim D., and J. Thomas (2007). Is Cash Flow King in Valuations? Financial Analysts Journal 63 (2): 56-65. |
| [11] | LeClair M. S. (1990). Valuing the Closely-Held Corporation: The Validity and Performance of Established Valuation Procedures. Accounting Horizons 4 (3): 31-42. |
| [12] | Beatty R. P., Riffe S. M., and R. Thompson (1999). The Method of Comparables and Tax Court Valuations of Private Firms: An Empirical Investigation. Accounting Horizons 13 (2): 177-199. |
| [13] | Baker M. and R. S. Ruback (1999). Estimating Industry Multiples. Working Paper. |
| [14] | Cheng A. C. S. and R. McNamara (2000). The Valuation Accuracy of the Price-Earnings and Price-Book Benchmark Valuation Methods. Review of Quantitative Finance and Accounting 15 (4): 349-370. |
| [15] | Liu J., Nissim D., and J. Thomas (2002). Equity Valuation Using Multiples. Journal of Accounting Research 40 (1): 135-172. |
| [16] | Cassia L., Paleari S., and S. Vismara (2004). The Valuation of Firms Listed on the Nuovo Mercato: The Peer Comparables Approach. Giudici Giancarlo, Roosemboom Peter (eds.). The Rise and Fall of Europe’s New Stock Markets, pp. 113-129. |
| [17] | Chan K. C. and N.-F. Chen (1991). Structural and Return Characteristics of Small and Large Firms. The Journal of Finance 46 (4): 1467-1484. |
| [18] | Xu L., Cai F., and C. K. Leung (2007). The Role of Book Value in High-Tech Valuation. Advances in Competitiveness Research 15 (1&2): 71-80. |
| [19] | Abukari K., Jog V., and B. J. McConomy (2000). The Role and the Relative Importance of Financial Statements in Equity Valuation. Working Paper. |
| [20] | Fernández P. (2001). Valuation Using Multiples: How Do Analysts Reach Their Conclusions? Working Paper. |
| [21] | Sehgal S. and A. Pandey (2010). Equity Valuation Using Price Multiples: A Comparative Study for BRICKS. Asian Journal of Finance and Accounting 2 (1): 68-91. |
| [22] | Dittmann I. and C. Weiner (2005). Selecting Comparables for the Valuation of European Firms. Working Paper. |
| [23] | Francis J. and K. Schipper (1999). Have Financial Statements Lost Their Relevance? Journal of Accounting Research 37 (2): 319-353. |
| [24] | Kile C. O. and M. E. Phillips (2009). Using Industry Classification Codes to Sample High-Technology Firms: Analysis and Recommendations. Journal of Accounting, Auditing and Finance 24 (1): 35-58. |
| [25] | Bhorjaj S., Lee C. M. C., and D. K. Oler (2003). What's my line? A comparison of industry classification schemes for capital market research. Journal of Accounting Research 41 (5): 745-774. |
| [26] | Krishnan J. and E. Press (2003). The North American Industry Classification System and Its Implications for Accounting Research. Contemporary Accounting Research 20 (4): 685-717. |
| [27] | Chan L. K. C., Lakonishok J., and B. Swaminathan (2007). Industry Classification and Return Comovement. Financial Analysts Journal 63 (6): 56-70. |
| [28] | Vermorken M. A. M. (2011). GICS or ICB, how different is similar? Journal of Asset Management 12 (1): 30-44. |
| [29] | Hrazdil K. and R. Zhang (2012). The importance of industry classification in estimating concentration ratios. Economics Letters 114 (2): 224-227. |
| [30] | Hrazdil K. and T. Scott (2013). The role of industry classification in estimating discretionary accruals. Review of Quantitative Finance and Accounting 40: 15-39. |
| [31] | Chung D. Y., Hrazdil K., and K. Trottier (2014). Industry Classification and the Efficiency of Intra-Industry Information Transfers. American Journal of Business 29 (1): 95-111. |
| [32] | Guenther D. A. and A. J. Rosman (1994). Differences between COMPUSTAT and CRSP SIC codes and related effects of research. Journal of Accounting and Economics 18 (1): 115-128. |
| [33] | Kahle K. M. and R. A. Walkling (1996). The Impact of Industry Classifications on Financial Research. Journal of Financial and Quantitative Analysis 31 (3): 309-335. |
| [34] | Amit R. and J. Livnat (1990). Grouping of Conglomerates by their Segments’ Economic Attributes: Towards a More Meaningful Ratio Analysis. Journal of Business Finance & Accounting 17 (1): 85-100. |
| [35] | Walker J. A. and J. B. Murphy (2001). Implementing the North American Industry Classification System at BLS. Monthly Labor Review 124 (12): 15-21. |
| [36] | Clarke R. N. (1989). SICs as Delineators of Economic Markets. The Journal of Business 62 (1): 17-31. |
| [37] | Fan J. P. H. and L. H. P. Lang (2000). The Measurement of Relatedness: An Application to Corporate Diversification. The Journal of Business 73 (4): 629-660. |
| [38] | Hirschey M., Richardson V. J., and S. Scholz (2001). Value Relevance of Nonfinancial Information: The Case of Patent Data. Review of Quantitative Finance and Accounting 17: 223-235. |
| [39] | Johnson M. F., Kasznik R., and K. K. Nelson (2001). The Impact of Securities Litigation Reform on the Disclosure of Forward-looking Information by High-Technology Firms. Journal of Accounting Research 39 (2): 297-327. |
| [40] | Billings B. K. and R. M. Morton (2002). The Relation Between SFAS No. 95 Cash Flows from Operations and Credit Risk. Journal of Business, Finance & Accounting 29 (5-6): 787-805. |
| [41] | Espahbodi H., Espahbodi P., Rezaee Z., and H. Tehranian (2002). Stock Price Reaction and Value Relevance of Recognition versus Disclosure: The Case of Stock-Based Compensation. Journal of Accounting and Economics 33 (3): 343-373. |
| [42] | Chen S., DeFond M. L., and C. W. Park (2002). Voluntary Disclosure of Balance Sheet Information in Quarterly Earnings Announcements. Journal of Accounting and Economics 33 (2): 229-251. |
| [43] | Kwon S. S. (2002). Financial Analysts’ Forecast Accuracy and Dispersion: High-Tech versus Low-Tech Stocks. Review of Quantitative Finance and Accounting 19: 65-91. |
| [44] | Kwon S. S. and J. Q. Yin (2006). Executive Compensation, Investment Opportunities, and Earnings Management: High-Tech Firms Versus Low-Tech Firms. Journal of Accounting, Auditing and Finance 21 (2): 119-148. |
| [45] | Core J. E., Guay W. R., and Buskirk V. A. (2003). Market Valuations in the New Economy: An Investigation of What Has Changed. Journal of Accounting and Economics 34 (1-3): 43-67. |
| [46] | Dowdell T. D. and E. Press (2004). The Impact of SEC Scrutiny on Financial Statement Reporting of In-Process Research and Development Expense. Journal of Accounting and Public Policy 23 (3): 227-244. |
| [47] | Bowen R. M., Davis A. K., and D. A. Matsumoto (2005). Emphasis on Pro Forma versus GAAP Earnings in Quarterly Press Releases. Determinants, SEC Interventions, and Market Reactions. The Accounting Review 80 (4): 1011-1038. |
| [48] | Mohd E. (2005). Accounting for Software Development Costs and Information Asymmetry. The Accounting Review 80 (4): 1211-1231. |
| [49] | Klobucnik J. and S. Sievers (2013). Valuing high-technology growth firms. Journal of Business Economics 83: 947-984. |
| [50] | La Porta R., Lopez-de-Silanes F., Shleifer A., and R. W. Vishny (1997). Legal Determinants of External Finance. The Journal of Finance 52 (3): 1131-1150. |
| [51] | Nissim D. (2013). Relative Valuation of U.S. Insurance Companies. Review of Accounting Studies 18: 324-359. |
| [52] | Sommer F., Rose C. and A. Wöhrmann (2014). Negative Value Indicators in Relative Valuation – An Empirical Perspective. Journal of Business Valuation and Economic Loss Analysis 9 (1): 23-54. |
| [53] | Kim M. and J. R. Ritter (1999). Valuing IPO’s. Journal of Financial Economics 53 (3): 409-437. |
| [54] | Yoo Y. K. (2006). The valuation accuracy of equity valuation using a combination of multiples. Review of Accounting and Finance 5 (2): 108-123. |
| [55] | Schreiner A. (2007). Equity Valuation Using Multiples: An Empirical Investigation. Gabler. |
| [56] | Sommer F. and A. Wöhrmann (2011). Triangulating the Accuracy of Comparable Company Valuations: A Multidimensional Analysis Considering Interaction Effects. Working Paper. |
| [57] | Chullen A., Kaltenbrunner H., and B. Schwetzler (2015). Does consistency improve accuracy in multiple-based valuation? Journal of Business Economics 85: 635-662. |
| [58] | Cooper I., and L. Cordeiro (2008). Optimal Equity Valuation Using Multiples: The Number of Comparable Firms. Working Paper. |
| [59] | Bowman R. G., Bush S. R., and L. Y. Graves (2005). Estimating betas using comparable company analysis: Is it a reliable method. Jassa 2005 (1): 10-14, 23. |
| [60] | Bowman R. G. and S. R. Bush (2006). Using Comparable Companies to Estimate the Betas of Private Companies. Journal of Applied Finance 16 (2): 71-81. |
| [61] | Asche F. and B. Misund (2016). Who’s a major? A novel approach to peer group selection: Evidence from oil and gas companies. Cogent Economics and Finance 4: 1-12. |
| [62] | Madura J., Ngo T., and A. M. Viale (2012). Why do merger premiums vary across industries and over time? The Quarterly Review of Economics and Finance 52 (1): 49-62. |
| [63] | Hausman J. A. and W. E. Taylor (1981). Panel Data and Unobservable Individual Effects. Econometrica 49 (6): 1377-1398. |
| [64] | Stockdale J. J. (1986). Comparison of Publicly-Held Companies with Closely-Held Business Entities. Business Valuation Review 5 (4): 3-11. |
| [65] | Alford A. W. (1992). The Effect of the set of Comparable Firms on the Accuracy of the Price-Earnings Valuation Method. Journal of Accounting Research 30 (1): 94-108. |
| [66] | Bhojraj S. and C. M. C. Lee (2002). Who is my Peer? A Valuation-Based Approach to the Selection of Comparable Firms. Journal of Accounting Research 40 (2): 407-439. |
| [67] | Codau C. (2013). Influencing Factors of Valuation Multiples of Companies. Annales Universitatis Apulensis Series Oeconomica 15 (2): 391-401. |
| [68] | Sahoo S. and P. Rajib (2013). Comparable firm’s P/E multiple and IPO valuation: An empirical investigation for Indian IPOs. Decision 40 (1-2): 27-46. |
| [69] | Hickman K. and G. H. Petry (1990). A Comparison of Stock Price Predictions Using Court Accepted Formulas, Dividend Discount, and P/E Models. Journal of the Financial Management Association 19 (2): 76-87. |
| [70] | Henschke S. and C. Homburg (2009). Equity valuation using multiples: Controlling for differences amongst peers. Working Paper. |
| [71] | Kaplan S. N. and R. S. Ruback (1995). The Valuation of Cash Flow Forecasts: An Empirical Analysis. The Journal of Finance 50 (4): 1059-1093. |
| [72] | Gilson S. C., Hotchkiss E. S., and R. S. Ruback (2000). Valuation of Bankrupt Firms. The Review of Financial Studies 13 (1): 43-74. |
| [73] | Dittmann I. and E. Maug (2008). Biases and Error Measures: How to Compare Valuation Methods. Working Paper. |
| [74] | Draper P. and K. Paudyal (2006). Acquisitions: Private versus Public. European Financial Management 12 (1): 57-80. |
| [75] | Eckbo E. B. (1992). Mergers and the Value of Antitrust Deterrence. The Journal of Finance 47 (3): 1005-1029. |
| [76] | Agrawal A., Jaffe J. F., and G. N. Mandelker (1992). The Post‐Merger Performance of Acquiring Firms: A Re-Examination of an Anomaly. The Journal of Finance 47 (4): 1605-1621. |
| [77] | Roach G. P. (1998). Control Premiums and Strategic Mergers. Business Valuation Review 17 (4): 42-49. |
| [78] | Hietala P., Kaplan S. N., and D. T. Robinson (2002). What is the Price of Hubris? Using Takeover Battles to Infer Overpayments and Synergies. Working Paper. |
| [79] | Kiymaz H. and K. H. Baker (2008). Short-Term Performance, Industry Effects, and Motives: Evidence from Large M&As. Quarterly Journal of Finance and Accounting 47 (2): 17-44. |
| [80] | Antoniou A., Arbour P., and H. Zaho (2008). How Much Is Too Much: Are Merger Premiums Too High? European Financial Management 14 (2): 268-287. |
| [81] | Paglia J. K. and M. Harjoto (2010). The Discount for Lack of Marketability in Privately Owned Companies: A Multiples Approach. Journal of Business Valuation and Economic Loss Analysis 5 (1): 1-24. |
| [82] | Jankowske W. (1995). Frameworks for Analysis of Control Premiums. Business Valuation Review 14 (1): 3-10. |
| [83] | Booth R. A. (2001). Minority Discounts and Control Premiums in Appraisal Proceedings. The Business Lawyer 57 (1): 127-161. |
| [84] | Hall L. S. (2014). Determining Control Premiums: A Better Approach. Valuation Strategies 17 (2): 44-46. |
| [85] | Wernerfeldt B. and C. A. Montgomery (1988). Tobin’s q and the Importance of Focus in Firm Performance. The American Economic Review 78 (1): 246-250. |
| [86] | Lang L. H. P. and R. M. Stulz (1994). Tobin’s q, Corporate Diversification and Firm Performance. Journal of Political Economy 102 (6): 1248-1280. |
| [87] | Berger P. G. and E. Ofek (1995). Diversification’s Effect on Firm Value. Journal of Financial Economics 37 (1): 35-65. |
| [88] | Servaes H. (1996). The value of diversification during the conglomerate merger wave. The Journal of Finance 51 (4): 1201-1225. |
| [89] | Denis D. J., Denis D., and A. Sarin (1997). Agency Problems, Equity Ownership and Corporate Diversification. The Journal of Finance 52 (1): 135-160. |
| [90] | Lins K. and H. Servaes (1999). International evidence on the value of corporate diversification. The Journal of Finance 54 (6): 2215-2239. |
| [91] | Klein P. G. (2001). Were the Acquisitive Conglomerates Inefficient? The RAND Journal of Economics 32 (4): 745-761. |
| [92] | Fauver L., Houston J., and A. Naranjo (2002). Capital Market Development, Integration, Legal Systems and the Value of Corporate Diversification: A Cross Country Analysis. Working Paper. |
| [93] | Denis D. J., Denis D., and K. Yost (2002). Global Diversification, Industrial Diversification and Firm Value. The Journal of Finance 57 (5): 1951-1971. |
| [94] | Billet M. T. and D. C. Mauer (2003). Cross-Subsidies, External Financing Constraints and the Contribution of the Internal Capital Market to Firm Value. Review of Financial Studies 16 (4): 1167-1201. |
| [95] | Best R. W., Hodges C. W., and B.-X. Lin (2004). Does Information Asymmetry Explain the Diversification Discount? Journal of Financial Research 27 (2): 235-249. |
| [96] | Villalonga B. (2004). Does Diversification Cause the Diversification Discount? Financial Management 53 (2): 5-26. |
| [97] | Comment R. and G. A. Jarrell (1995). Corporate focus and stock returns. Journal of Financial Economics 37 (1): 67-87. |
| [98] | Hubbard G. R. and D. Paglia (1999). A Reexamination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Market View. The Journal of Finance 54 (3): 1131-1152. |
| [99] | Lamont O. A. and C. Polk (2002). Does Diversification Destroy Value? Evidence from Industry Shocks. Journal of Financial Economics 63 (1): 51-77. |
| [100] | Hyland D. C. and D. J. Diltz (2002). Why Firms Diversify: An Empirical Examination. Financial Management 31 (1): 51-81. |
| [101] | Burch T. R. and V. K. Nanda (2003). Divisional Diversity and the Conglomerate Discount: The Evidence from Spinoffs. Journal of Financial Economics 70 (1): 69-98. |
| [102] | Dos Santos M. B., Errunza V. R., and D. P. Miller (2008). Does corporate international diversification destroy value? Evidence from cross-border mergers and acquisitions. Journal of Banking and Finance 32 (12): 2716-2724. |
| [103] | Ozbas O. and D. S. Scharfstein (2010). Evidence on the Dark Side of Internal Capital Markets. The Review of Financial Studies 23 (2): 581–599. |
| [104] | Alexandridis G., Fuller K. P., Terhaar L., and N. G. Travlos (2013). Deal size, acquisition premia and shareholder gains. Journal of Corporate Finance 20: 1-13. |
| [105] | Hertzel M. and R. L. Smith (1993). Market Discounts and Shareholder Gains for Placing Equity Privately. The Journal of Finance 48 (2): 459-469. |
| [106] | Dodel K. (2013). Private Firm Valuation and M&A: Calculating Value and Estimating Discounts in the New Market Environment. Wiley. |
| [107] | Officer M. S. (2007). The price of corporate liquidity: Acquisition discounts for unlisted targets. Journal of Financial Economics 83 (3): 571-598. |
| [108] | Eckbo E. B., Giammarino R. M., and R. L. Heinkel (1990). Asymmetric Information and the Medium of Exchange in Takeovers: Theory and Tests. Review of Financial Studies 3 (4): 651-676. |
| [109] | Berkovitch E. and M. P. Narayanan (1990). Competition and Medium of Exchange in Takeovers. The Review of Financial Studies 3 (2): 153-174. |
| [110] | Harris R. S. and D. Ravenscraft (1991). The Role of Acquisitions in Foreign Direct Investment: Evidence from the U:S. Stock Market. The Journal of Finance 46 (3): 825-844. |
| [111] | Servaes H. (1991). Tobin’s Q and the Gains from Takeovers. The Journal of Finance 46 (1): 409-419. |
| [112] | Andrade G., Mitchell M., and E. Stafford (2001). New Evidence and Perspectives on Mergers. Journal of Economic Perspectives 15 (2): 103-120. |
| [113] | Travlos N. G. (1987). Corporate Takeover Bids, Methods of Payment and Bidding Firms’ Stock Returns. The Journal of Finance 42 (4): 943-963. |
| [114] | Bellamy D. E. and W. M. Lewin (1992). Corporate Takeovers, Method of Payment, and Bidding Firms’ Shareholder Returns: Australian Evidence. Asia Pacific Journal of Management 9 (2): 137-149. |
| [115] | Chang S. (1998). Takeovers of Privately Held Targets, Methods of Payment, and Bidder Returns. The Journal of Finance 53 (2): 773-784. |
| [116] | Fuller K., Netter J., and M. Stegemoller (2002). What Do Returns to Acquiring Firms Tell Us? Evidence from Firms That Make Many Acquisitions. The Journal of Finance 57 (4): 1763-1793. |
| [117] | da Silva Rosa R., Limmack R., Supriadi, and D. Woodliff (2004). The Equity Wealth Effects of Method of Payment in Takeover Bids for Privately Held Firms. Australian Journal of Management 29 (1): 93-110. |
| [118] | Heron R. and E. Lie (2002). Operating Performance and the Method of Payment in Takeovers. Journal of Financial and Quantitative Analysis 37 (1): 137-155. |
| [119] | Bouwman C. H. S., Fuller K., and A. S. Nain (2009). Market Valuation and Acquisition Quality: Empirical Evidence. The Review of Financial Studies 22 (2): 633-679. |
| [120] | Jovanovic B. and P. L. Rousseau (2001). Mergers and Technological Change: 1885-1998. Working Paper. |
| [121] | Bhagat S. and S. Rangan (2003). IPO Valuation in the New and Old Economies. Working Paper. |
| [122] | Aggarwal R., Bhagat S., and S. Rangan (2009). The Impact of Fundamentals on IPO Valuation. Financial Management 38 (2): 253-284. |
| [123] | De Franco G., Hope O.-K., and S. Larocque (2015). Analyst’s choice of peer companies. Review of Accounting Studies 20: 82-109. |
| [124] | Roback E. and L. S. Hall (2001). Bringing Sanity to Marketability Discounts: A New Data Source. Valuation Strategies 4 (6): 6-46. |
| [125] | Parvinder A., Kweh Q. L., and M. Deepanker (2018). Performance comparison between domestic and international firms in the high-technology industry. Eurasian Business Review 8: 477-490. |
| [126] | Albuquerque A. M. (2009). Peer firms in relative performance evaluation. Journal of Accounting and Economics 48 (1): 69-89. |
| [127] | Albuquerque A. M., De Franco G., and R. S. Verdi (2013). Peer choice in CEO compensation. Journal of Financial Economics 108 (1): 160-181. |
| [128] | Dikolli S. S., Hofmann C., and T. Pfeiffer (2013). Relative performance evaluation and peer-performance summarization errors. Review of Accounting Studies 18: 34-65. |
| [129] | Conrick C. J. (2006). An Analysis of the Relationship of Publicly Traded Stock Multiples to Closely Held Firm Value Multiples. Business Valuation Review 21 (4): 173-181. |
| [130] | Bolten S. E., Brockardt J. W., and M. J. Ward (1987). The Summary (Build-Up) Capitalization Rate Factors for Retailers. Business Valuation Review 6 (1): 6-13. |
| [131] | Silber W. (1991). Discounts on Restricted Stock: The Impact of Illiquidity on Stock Prices. Financial Analysts Journal 47 (4): 60-64. |
| [132] | McConaughy D. L., Cary D., and C. Chen (2000). Factors Affecting Discounts on Restricted Stock. Valuation Strategies 4 (6): 14-20. |
| [133] | Abbott A. B. (2012). Estimating the Discount for Lack of Marketability: A Best fit Model. Valuation Strategies 15 (3): 20-25. |
| [134] | Asness C. S., Porter B. R., and R. L. Stevens (2000). Predicting Stock Returns Using Industry-Relative Firm Characteristics. Working Paper. |
| [135] | Demirakos E. G., Strong N. C., and M. Walker (2010). Does valuation model choice affect target price accuracy? European Accounting Review 19 (1): 1-50. |
| [136] | Cooper E. W., Barenbaum L., and W. Schubert (2013). Using Guideline Company Multiples for Small Firm Valuations. Valuation Strategies 16 (4): 4-17. |
| [137] | Yin Y., Peasnell K., Lubberink M., and H. G. Hunt (2014). Determinants of Analysts’ Target P/E Multiples. Journal of Investing 23 (3): 35-42. |
| [138] | Moeller S. B., Schlingemann F. P., and R. M. Stulz (2004). Firm size and the gains from acquisitions. Journal of Financial Economics 73 (2): 201-228. |
| [139] | Asquith P., Bruner R. F., and D. W. Mullins (1983). The gains to bidding firms from merger. Journal of Financial Economics 11 (1-4): 121-139. |
| [140] | Bae S. C. and D. Kim (2003). The Effect of R&D Investments on Market Value of Firms: Evidence from the U.S., Germany, and Japan. Multinational Business Review 11 (3): 51-75. |
| [141] | Bonacchi M., Marra A., and P. Zarowin (2017). Earnings Quality of Private and Public Firms: Business Groups versus Stand-Alone Firms. Working Paper. |
APA Style
Stefan Otto Grbenic. (2021). Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting. International Journal of Economics, Finance and Management Sciences, 9(2), 77-96. https://doi.org/10.11648/j.ijefm.20210902.13
ACS Style
Stefan Otto Grbenic. Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting. Int. J. Econ. Finance Manag. Sci. 2021, 9(2), 77-96. doi: 10.11648/j.ijefm.20210902.13
AMA Style
Stefan Otto Grbenic. Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting. Int J Econ Finance Manag Sci. 2021;9(2):77-96. doi: 10.11648/j.ijefm.20210902.13
Share This Article
Twitter
Linked In
Facebook
Copy
Download@article{10.11648/j.ijefm.20210902.13,
author = {Stefan Otto Grbenic},
title = {Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting},
journal = {International Journal of Economics, Finance and Management Sciences},
volume = {9},
number = {2},
pages = {77-96},
doi = {10.11648/j.ijefm.20210902.13},
url = {https://doi.org/10.11648/j.ijefm.20210902.13},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20210902.13},
abstract = {Prior research, investigating the absolute performance of multiples as well as the relative superiority of different types of multiples, yields contradictory results that might be attributed to varying peer pool settings. This paper emphasizes on the technology sector and extends existing research, in its entirety being limited to trading multiples on listed companies, to transaction multiples on private firms. Employing a set of 22,967 observations on private market transactions of technology firms collected from 2000 until 2018, I examine the systematic impact of peer pooling on (i) the relative superiority of cross-sectoral multiples, (ii) the absolute superiority of sectoral multiples and, (iii) the absolute superiority of cross-sectoral multiples being segmented by various country-specific high-tech indicators. The multiples employed capture both, enterprise value and equity value multiples. The performance of the multiples in the various peer pool settings is evaluated according to bias as well as accuracy, utilizing the standard holdout routine on the transactions. The results indicate that (i) contradictory results in prior research on multiple’s bias may be strongly attributed to the varying peer pools employed, (ii) the enterprise value to total assets multiple clearly dominates across all peer pools on a cross-sectoral basis, indicating that contradictory results on multiple’s accuracy may not be attributed to the varying peer pools employed and, (iii) the performance of sectoral multiples depends on the value driver employed, showing only a weak relationship with the peer pool setting. Therefore, valuation analysts are recommended to utilize larger peer pools when employing cross-sectoral multiples, to emphasize on the enterprise value to total assets multiple, to further break down the high-tech sector into sub-sectors and, to employ sectoral multiples or multiples segmented according to country-specific high-tech indicators alternately.},
year = {2021}
}
TY - JOUR T1 - Private Firm Valuation in the Technology Sector: Illuminating the Interaction Between Multiple Performance and Peer Pool Setting AU - Stefan Otto Grbenic Y1 - 2021/05/08 PY - 2021 N1 - https://doi.org/10.11648/j.ijefm.20210902.13 DO - 10.11648/j.ijefm.20210902.13 T2 - International Journal of Economics, Finance and Management Sciences JF - International Journal of Economics, Finance and Management Sciences JO - International Journal of Economics, Finance and Management Sciences SP - 77 EP - 96 PB - Science Publishing Group SN - 2326-9561 UR - https://doi.org/10.11648/j.ijefm.20210902.13 AB - Prior research, investigating the absolute performance of multiples as well as the relative superiority of different types of multiples, yields contradictory results that might be attributed to varying peer pool settings. This paper emphasizes on the technology sector and extends existing research, in its entirety being limited to trading multiples on listed companies, to transaction multiples on private firms. Employing a set of 22,967 observations on private market transactions of technology firms collected from 2000 until 2018, I examine the systematic impact of peer pooling on (i) the relative superiority of cross-sectoral multiples, (ii) the absolute superiority of sectoral multiples and, (iii) the absolute superiority of cross-sectoral multiples being segmented by various country-specific high-tech indicators. The multiples employed capture both, enterprise value and equity value multiples. The performance of the multiples in the various peer pool settings is evaluated according to bias as well as accuracy, utilizing the standard holdout routine on the transactions. The results indicate that (i) contradictory results in prior research on multiple’s bias may be strongly attributed to the varying peer pools employed, (ii) the enterprise value to total assets multiple clearly dominates across all peer pools on a cross-sectoral basis, indicating that contradictory results on multiple’s accuracy may not be attributed to the varying peer pools employed and, (iii) the performance of sectoral multiples depends on the value driver employed, showing only a weak relationship with the peer pool setting. Therefore, valuation analysts are recommended to utilize larger peer pools when employing cross-sectoral multiples, to emphasize on the enterprise value to total assets multiple, to further break down the high-tech sector into sub-sectors and, to employ sectoral multiples or multiples segmented according to country-specific high-tech indicators alternately. VL - 9 IS - 2 ER -
Information
Email: