“Cross-Country Differences in Firm Multiples” by David NG
In this study, we examine the role of importance of country membership in determining firm multiples. Specifically, using a sample of firms from 20 countries we examine the extent to which country-membership contributes to differences in Sales-to-Enterprise Value, Book-to-Market and three earnings based multiples. We find that country membership has significant but differential effects on the five multiples examined. Sales based multiple is the least affected by country membership while earnings-based multiples are most affected by country membership. We examine two explanations including differences in industry composition and accounting differences across countries. Examining the variation in country-average multiples over time we find that industry composition has a significant effect on country-mean SEV multiples while variation in country-mean EP multiples is driven primarily by pure country factors. Using a sample of American Depository Receipts that report under different accounting regimes, we develop metrics for measuring the percentage differences in reported accounting figures in the income statement as well as on book value. We find that there is little variation in the sales numbers across accounting regimes, while net income numbers show substantial variation. In addition, the metrics are significantly related to observed differences in country level multiples.