MARKET AND TRANSACTION MULTIPLES’ ACCURACY IN THE EUROPEAN EQUITY MARKET

In spite of their widespread use in practice, accounting-based multiples are subject of few academic studies. This paper investigates market and transaction multiples’ accuracy in corporate equity valuation by considering a sample of listed companies which are assumed to be private and evaluated according to accounting-based multiples. Results show that transaction and market multiples perform very poorly and that relevant firm-specific adjustments are necessary. Specifically, equity valuation based on multiples entails measurement errors which tend to overestimate and to lead to more volatile values.