IDEAS home Printed from
   My bibliography  Save this article

The Behavior of Price Multiples in India (1990-2007)


  • Sanjay Sehgal

    () (Department of Financial Studies, University of Delhi,South Campus, ESC-PAU, France)

  • Asheesh Pandey

    (Department of Financial Studies, University of Delhi,South Campus, ESC-PAU, France)


In this paper, we examine the behaviour of price multiples in India from 1990–2007. The distributions of price multiples tend to be normal over our study period, thus making the mean and standard deviation of these multiples relevant parameters for equity analysis in the Indian context. Further, sectors with high price multiples exhibit greater volatility in these multiples. This may result in greater price forecast errors for these sectors. We also find a very weak relationship between price multiples and their fundamental determinants. The cross-sectional linear models do not seem to be good descriptors of price multiples. However, price-to-book value (P/BV) and price-to-sales (P/S) ratios do reflect corporate fundamentals in the case of the Bombay Stock Exchange Sensitive Index,which tracks 30 stocks that are large in size and account for a major part of trading activity. In contrast, the fundamental determinants do not seem to drive price-to-earnings (P/E) and price-to-cash flow (P/CF) ratios, even for our limited universe of index stocks.This may be owing to the fact that earnings multiples are more driven by sentiments due to the actions of noise traders than by fundamentals, which influence the behaviour of value traders. Further, earnings are a bottom line number and thus are severely affected by accounting biases and judgments. The price multiples also seem to be sensitive to market conditions and therefore are generally greater in upturns, with the exception of infrastructure-related sectors. Our results are relevant for market stakeholders, who use price-multiple information for strategy building and policy decision making.

Suggested Citation

  • Sanjay Sehgal & Asheesh Pandey, 2009. "The Behavior of Price Multiples in India (1990-2007)," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 5(1), pages 31-65.
  • Handle: RePEc:usm:journl:aamjaf00501_31-65

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Sabri Boubaker & Hind Sami, 2011. "Multiple large shareholders and earnings informativeness," Review of Accounting and Finance, Emerald Group Publishing, vol. 10(3), pages 246-266, August.
    2. Vafeas, Nikos, 2000. "Board structure and the informativeness of earnings," Journal of Accounting and Public Policy, Elsevier, vol. 19(2), pages 139-160, June.
    3. Velury, Uma & Jenkins, David S., 2006. "Institutional ownership and the quality of earnings," Journal of Business Research, Elsevier, vol. 59(9), pages 1043-1051, September.
    4. Adriana Korczak & Piotr Korczak, 2009. "Corporate ownership and the information content of earnings in Poland," Applied Financial Economics, Taylor & Francis Journals, vol. 19(9), pages 703-717.
    5. Ferdinand T. Siagian & Elok Tresnaningsih, 2011. "The impact of independent directors and independent audit committees on earnings quality reported by Indonesian firms," Asian Review of Accounting, Emerald Group Publishing, vol. 19(3), pages 192-207, September.
    6. Effiezal Aswadi Abdul Wahab & & Janice How, 2008. "Corporate Governance and Institutional Investors: Evidence from Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 4(2), pages 67-90.
    7. Ellen Engel, 2005. "Discussion of Does the Market Value Financial Expertise on Audit Committees of Boards of Directors?," Journal of Accounting Research, Wiley Blackwell, vol. 43(2), pages 195-204, May.
    8. Khaled Hussainey, 2009. "The impact of audit quality on earnings predictability," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(4), pages 340-351, April.
    9. Jung, Kooyul & Kwon, Soo Young, 2002. "Ownership structure and earnings informativeness: Evidence from Korea," The International Journal of Accounting, Elsevier, vol. 37(3), pages 301-325.
    10. Norman Mohd Saleh & Mara Ridhuan Che Abdul Rahman & Mohamat Sabri Hassan, 2009. "Ownership Structure and Intellectual Capital Performance in Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 5(1), pages 1-29.
    11. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    12. Steven Petra, 2007. "The Effects of Corporate Governance on the Informativeness of Earnings," Economics of Governance, Springer, vol. 8(2), pages 129-152, February.
    13. Jui-Chin Chang & Huey-Lian Sun, 2010. "Does the disclosure of corporate governance structures affect firms' earnings quality?," Review of Accounting and Finance, Emerald Group Publishing, vol. 9(3), pages 212-243, August.
    14. Park, Yun W. & Shin, Hyun-Han, 2004. "Board composition and earnings management in Canada," Journal of Corporate Finance, Elsevier, vol. 10(3), pages 431-457, June.
    15. Aloke Ghosh & Doocheol Moon, 2010. "The effect of CEO ownership on the information content of reported earnings," Review of Quantitative Finance and Accounting, Springer, vol. 35(4), pages 393-410, November.
    16. Kevin Hendry & Geoffrey C. Kiel, 2004. "The Role of the Board in Firm Strategy: integrating agency and organisational control perspectives," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(4), pages 500-520, October.
    17. Dimitropoulos, Panagiotis E. & Asteriou, Dimitrios, 2010. "The effect of board composition on the informativeness and quality of annual earnings: Empirical evidence from Greece," Research in International Business and Finance, Elsevier, vol. 24(2), pages 190-205, June.
    18. Flora F. Niu, 2006. "Corporate governance and the quality of accounting earnings: a Canadian perspective," International Journal of Managerial Finance, Emerald Group Publishing, vol. 2(4), pages 302-327, September.
    Full references (including those not matched with items on IDEAS)


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:usm:journl:aamjaf00501_31-65. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journal Division, Penerbit Universiti Sains Malaysia). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.