The accuracy of cross-country valuation by multiples using comparables – the cultural aspect

We study the accuracy of using traditional multiples valuation method in a global setting. The method of comparables refers to the valuation of companies based on multiples of comparable (similar) companies, preferably from same industry. While this may lead to accurate valuations of comparables from one country, it is often not the case for global comparables due to cross-country differences in culture, economics and accounting practice. We selected all listed non-financial companies with non-negative earnings and equity from the global ORBIS-database, i.e. 16,898 companies from 112 countries. PWC’s publication on contemporaneous adoption and use of IFRS, helped us categorise each country’s accounting regime as requiring, permitting or disallowing IFRS for listed companies. Hofstede’s cultural indexes adapted to Gray’s accounting values where used to categorise cultural differences. Finally, we chose the P/E, P/B, P/S, EV/S and EV/EBITDA ratios as our multiples. We find that the traditional focus on industry alone is not the best way to estimate a company’s value based on multiples. Different attitudes towards selection of comparables lead to differences in valuation precision due to differences in accounting tradition and culture in various countries. Consequently, the cultural aspect should be taken into consideration when choosing comparables across countries.

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Connections Between Cultures: Using Empirical Distributions for Measuring Cultural Differences

Journal of Cross-Cultural Psychology ◽

10.1177/0022022120982370 ◽

2020 ◽

pp. 002202212098237

Author(s):

Wolfgang Messner

Keyword(s):

Cultural Values ◽

Cultural Differences ◽

Distance Measures ◽

Cultural Variation ◽

Group Level ◽

Psychological Phenomena ◽

Empirical Distributions ◽

Leibler Divergence ◽

Country Differences ◽

Cross Country

The past few decades have seen an explosion in the interest in cultural differences and their impact on many aspects of business management. A noticeable feature of most academic studies and practitioner approaches is the predominant use of national boundaries and group-level averages as delimiters and proxies for culture. However, this largely ignores the significance that intra-country differences and cross-country similarities can have for identifying psychological phenomena. This article argues for the importance of considering intra-cultural variation for establishing connections between two different cultures. It uses empirical distributions of cultural values that occur naturally within a country, thereby making intracultural differences interpretable and actionable. For measuring cross-country differences, the Gini/Weitzman overlapping index and the Kullback-Leibler divergence coefficient are used as difference measures between two distributions. The properties of these measures in comparison to traditional group-level mean-based distance measures are analyzed, and implications for cross-cultural and international business research are discussed.

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Empirical Evidence on the Evolution of International Earnings

The Accounting Review ◽

10.2308/accr.2002.77.s-1.115 ◽

2002 ◽

Vol 77 (s-1) ◽

pp. 115-133 ◽

Cited By ~ 100

Author(s):

Judy Land ◽

Mark H. Lang

Keyword(s):

Interest Rates ◽

Empirical Evidence ◽

Cash Flow ◽

Growth Rates ◽

Economic Determinants ◽

Accounting Practice ◽

Time Period ◽

Earnings Smoothing ◽

Country Differences ◽

Cross Country

We examine whether cross-country differences in earnings-to-price multiples have changed between 1987–1992 and 1994–1999. Our results suggest that earnings multiples became more similar over this time period for the jurisdictions we analyze, although systematic differences remain. Economic determinants of earnings multiples (e.g., growth rates, interest rates, and returns) do not exhibit similar convergence and do not appear to explain the changes. The convergence is robust to controls for cash flow multiples and is apparent in the valuation of accruals. Accrual/cash flow correlations have also become more similar and generally less negative, suggesting a reduction in earnings smoothing. Overall, our evidence suggests convergence in accounting practice.

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