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Equity Valuation Using Multiples in the Emerging Market of the United Arab Emirates

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  • Omran M. F.

    (College of Business and Management, University of Sharjah)

Abstract

This study offers some preliminary results about stock valuation in the emerging market of the United Arab Emirates. It examines the determinants of three valuation multiples in the period from 1996-2001, the price sales (PS), the price book value (PBV) and the price earnings (PE). Consistent with economic theory it is found that (1) the PS is positively significantly related to net profit margin; (2) the PBV is positively significantly related to return on equity; and (3) PE is positively significantly related to the payout ratio. The PE proved to be the most difficult to model because of the existence of outliers. These outliers can be explained by two extreme cases: Case 1, companies that have very low payout and growth rates, and still achieve the highest PE ratios; Case 2, companies that tend to pay far more in dividends compared to what they achieved in profit. Abu Dhabi Islamic bank seems to be trading at higher PE and PS multiples compared with commercial banks due to its clientele appreciation of its services rather than the net profit margin achieved or the dividends paid. Judged by R2 and statistical evidence, the PBV and PS valuation models stand a better chance of explaining and possibly predicting prices in the UAE than the PE model.

Suggested Citation

  • Omran M. F., 2003. "Equity Valuation Using Multiples in the Emerging Market of the United Arab Emirates," Review of Middle East Economics and Finance, De Gruyter, vol. 1(3), pages 72-88, December.
    • Handle: RePEc:bpj:rmeecf:v:1:y:2003:i:3:n:5
    DOI: 10.2202/1475-3693.1016
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    References listed on IDEAS

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    1. Sanjeev Bhojraj & Charles M. C. Lee, 2002. "Who Is My Peer? A Valuation‐Based Approach to the Selection of Comparable Firms," Journal of Accounting Research, Wiley Blackwell, vol. 40(2), pages 407-439, May.
    2. Gustavo Grullon & Roni Michaely & Bhaskaran Swaminathan, 2002. "Are Dividend Changes a Sign of Firm Maturity?," The Journal of Business, University of Chicago Press, vol. 75(3), pages 387-424, July.
    3. M. F. Omran & E. McKenzie, 2000. "Heteroscedasticity in stock returns data revisited: volume versus GARCH effects," Applied Financial Economics, Taylor & Francis Journals, vol. 10(5), pages 553-560.
    4. Jing Liu & Doron Nissim & Jacob Thomas, 2002. "Equity Valuation Using Multiples," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 135-172, March.
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    Cited by:

    1. WS Nel, 2015. "An Optimal Peer Group Selection Strategy for Multiples-Based Modelling in the South African Equity Market," Journal of Economics and Behavioral Studies, AMH International, vol. 7(3), pages 30-46.
    2. Alali, Fatima A. & Foote, Paul Sheldon, 2012. "The Value Relevance of International Financial Reporting Standards: Empirical Evidence in an Emerging Market," The International Journal of Accounting, Elsevier, vol. 47(1), pages 85-108.
    3. Waleed Khalid & Kashif Ur Rehman & Muhammad Kashif, 2019. "The Impact of Merger and Acquisition Firms on Stock Market Bubble," Global Regional Review, Humanity Only, vol. 4(1), pages 335-342, March.
    4. Khaled Aljifri & Hafiz Imtiaz Ahmad, 2019. "Preferred Valuation Techniques in the UAE: A Comparative Study of Financial and Nonfinancial Sectors," International Journal of Economics and Financial Issues, Econjournals, vol. 9(1), pages 51-59.
    5. Omran M. F., 2009. "Examining the Effects of Islamic Beliefs on the Valuation of Financial Institutions in the United Arab Emirates," Review of Middle East Economics and Finance, De Gruyter, vol. 5(1), pages 72-79, May.

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