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Journal of Business Valuation and Economic Loss Analysis

Editor-in-Chief: Ewing, Bradley T. / Hoffman, Jim

CiteScore 2017: 0.32

SCImago Journal Rank (SJR) 2017: 0.160
Source Normalized Impact per Paper (SNIP) 2017: 0.622

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Negative Value Indicators in Relative Valuation – An Empirical Perspective

Friedrich Sommer
  • Corresponding author
  • Münster School of Business and Economics, University of Münster, Universitätsstraße 14-16, D-48143 Münster, Germany
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/ Christian Rose / Arnt Wöhrmann
Published Online: 2014-03-12 | DOI: https://doi.org/10.1515/jbvela-2013-0024


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.

Keywords: relative valuation; comparables; multiples; negative earnings; losses

JEL: G34; G17; M41


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About the article

Published Online: 2014-03-12

Published in Print: 2014-01-01

Citation Information: Journal of Business Valuation and Economic Loss Analysis, Volume 9, Issue 1, Pages 23–54, ISSN (Online) 1932-9156, ISSN (Print) 2194-5861, DOI: https://doi.org/10.1515/jbvela-2013-0024.

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