6 Summary and conclusions (S. 145-146)

6.1 Summary of findings

This thes is investigates the valuation accuracy of equit y valuation methods. The main aims of this thesis are I) to empirically analyze the absolute and relati ve valuation errors of different equity valuation rnethod s, 2) to empiricall y analyze the determ inants of valu ation errors and 3) to improve the valuation accuracy of equity valuation methods. In Chapter 3, I address these research questions by reviewing the empirical literature on equity valuation methods. Overall , I find that all investigated equity valuation methods are inaccurate. Compared to observed stock prices even the most accurate equit y valuation methods yield mean absolute percentage errors of 20% and more .

Within this thesis I argue that the observed va luation errors are not fixed but rather can be attr ibuted to a number 01 influencing factors . The results of prior research indicate that intrinsic valuation methods appear to be inaccurate because of simpl ifications arising from the terminal value. Furtherrnore, prior research finds that different intrinsic valuat ion methods may yield different value estimates when the payoffs used by these methods are inconsistent to each oth er. However, when the forecasted futur e payoffs are consistent to each other, the methods yield the same value estimates and , therefore, perform identically.

On averag e, valu e estimates based on multipl es appear to yield valu e estimates which - compared to intrinsic valuation methods - are clos er to the observed mark et values.l" However, the results of prior literature indicate that the accuracy of multipl es appears to depend on the adequacy of the comparable firms . Finally, linear information models such as the Ohlson (1995) model appear to perform less accurate than mult iples or intrinsic valuation methods. lt appears that a one size fits it all approach to forecast futur e payoffs is not appropriate. lt is also unclear wheth er current implementations of linear information models are able to capture the effe cts of accounting conservatism.

In Chapt er 4, I investigate how differences betw een firms affect the valuation errors of the multiple valuation method. Based on the common approach to use industry membership to form peer groups, I find signific ant systematic errors in the value estimates 01 different value drivers. These systematic valuation error s are con sisten t to my hypotheses, statistically signifi cant, economically substantial, consistent between different value drivers and robust across time .