Determinants of Relative Valuation in Different Industry Sectors—An Empirical Study

Abstract

This article aims to determine the fundamental drivers of various relative valuation multiples in different industry sectors. It is based on a sample of 189 companies in seven industry sectors. Through regression analysis, the study identifies the determinant variables for the most widely used earnings, revenue, and book value multiples: P/E ratios, enterprise value to EBITDA multiple and price to book multiple. Additionally, we find that dividend payouts have different effects on valuation multiples in different sectors.

TOPICS: Fundamental equity analysis, statistical methods