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Pricing With Performance-Controlled Multiples

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  • Volker Herrmann
  • Frank Richter
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    Abstract

    We test an approach for estimating the potential price of as yet untraded equity investments. The innovative aspect of our approach is that we use specific control factors, which we identify on the basis of a simplified valuation model. We investigate the accuracy of our approach by using a multi-year sample of American and European firms. The empirical results suggest that a selection of comparable assets based on control factors is superior to a selection based on SIC industry codes. Our study also offers some guidance on the reliability of different bases of reference and on diverse methods of estimating multiples from comparable sets.

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    Bibliographic Info

    Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

    Volume (Year): 55 (2003)
    Issue (Month): 3 (July)
    Pages: 194–219

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    Handle: RePEc:sbr:abstra:v:55:y:2003:i:3:p:194-219

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    Related research

    Keywords: Asset Pricing; Multiples; Discounted Cash-Flow; Key Performance Indivators;

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    Cited by:
    1. Christian Weiner, 2005. "The Impact of Industry Classification Schemes on Financial Research," SFB 649 Discussion Papers SFB649DP2005-062, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    2. Dragos Ioan Mînjina, 2009. "Relative Performance of Valuation Using Multiples. Empirical Evidence on Bucharest Stock Exchange," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 1(1), pages 035-053, December.
    3. Ingolf Dittmann & Christian Weiner, 2005. "Selecting Comparables for the Valuation of European Firms," SFB 649 Discussion Papers SFB649DP2005-002, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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