Journal article

Authors list: Sommer, Friedrich; Rose, Christian; Wöhrmann, Arnt

Publication year: 2014

Pages: 23-54

Journal: Journal of Business Valuation and Economic Loss Analysis

Volume number: 9

Issue number: 1

DOI Link: https://doi.org/10.1515/jbvela-2013-0024

Publisher: De Gruyter

Abstract: 

This study investigates whether firms with negative value indicators (e.g. negative EBIT) should be excluded from peer groups in relative valuation. While this approach is chosen in many empirical studies and recommended by practitioners, valuation textbooks suggest including firms with negative value indicators in the peer groups. Evidence regarding which alternative leads to more accurate firm value estimates is missing. We conduct an empirical study using a sample from the S&P Composite 1,500 Index for the period 1994–2010 to answer this question. We find that, contrary to textbook recommendations, eliminating firms with negative value indicators generally leads to more accurate firm value estimates.

Harvard Citation style: Sommer, F., Rose, C. and Wöhrmann, A. (2014) Negative Value Indicators in Relative Valuation – An Empirical Perspective, Journal of Business Valuation and Economic Loss Analysis, 9(1), pp. 23-54. https://doi.org/10.1515/jbvela-2013-0024

APA Citation style: Sommer, F., Rose, C., & Wöhrmann, A. (2014). Negative Value Indicators in Relative Valuation – An Empirical Perspective. Journal of Business Valuation and Economic Loss Analysis. 9(1), 23-54. https://doi.org/10.1515/jbvela-2013-0024