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Factors Affecting Price Earnings Ratios and Market Values of Japanese Firms

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  • Richard L. Constand
  • Lewis P. Freitas
  • Michael J. Sullivan

Abstract

This paper investigates cross-sectional explanations of Japanese PE ratios by focusing on two dependent variables, the percentage change in the PE ratio (PE) and the percentage change in the market value of equity (MV). Results of this study suggest that changes in the value of hidden assets such as land, changes in the patterns of ownership by Japanese individuals, and foreign investors, changes in expected earnings growth and earnings risk, and changes in dividends per share and dividend payout are significantly related to changes in PE ratios and market values. Our results, therefore, support the contention of French and Poterba that changes in land values appear to explain at least a portion of changes in Japanese PE ratios.

Suggested Citation

  • Richard L. Constand & Lewis P. Freitas & Michael J. Sullivan, 1991. "Factors Affecting Price Earnings Ratios and Market Values of Japanese Firms," Financial Management, Financial Management Association, vol. 20(4), Winter.
    • Handle: RePEc:fma:fmanag:constand91
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    Cited by:

    1. Katz, Jeffrey P. & Werner, Steve & Brouthers, Lance, 1999. "Does Winning Mean the Same Thing around the World? National Ideology and the Performance of Global Competitors," Journal of Business Research, Elsevier, vol. 44(2), pages 117-126, February.
    2. Halil ARSLAN & Yuksel ILTAS & Temur KAYHAN, 2017. "Target P/E ratio determinants in the Turkish Stock Market: Earning volatility effect," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(4(613), W), pages 65-74, Winter.
    3. Prem Jain & Joshua Rosett, 2006. "Macroeconomic variables and the E/P ratio: Is inflation really positively associated with the E/P ratio?," Review of Quantitative Finance and Accounting, Springer, vol. 27(1), pages 5-26, August.
    4. Ying Huang & Chia-Hui Tsai & Carl R. Chen, 2007. "Expected P/E, Residual P/E, and Stock Return Reversal: Time-Varying Fundamentals or Investor Overreaction?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 6(1), pages 11-28, April.
    5. James Gander, 2009. "Equity valuation under Bull and Bear market regimes in South East Asia firms: a switching regression approach," Applied Economics, Taylor & Francis Journals, vol. 43(7), pages 837-844.
    6. Nikbakht, Ehsan & Polat, Celaleddin, 1998. "A global perspective of P/E ratio determinants: The case of ADRs," Global Finance Journal, Elsevier, vol. 9(2), pages 253-267.
    7. Itemgenova, Aigerim & Sikveland, Marius, 2020. "The determinants of the price-earnings ratio in the Norwegian aquaculture industry," Journal of Commodity Markets, Elsevier, vol. 17(C).
    8. Constand, Richard L. & Pace, R. Daniel, 1998. "Another look at corporate ownership in Japan," Global Finance Journal, Elsevier, vol. 9(1), pages 127-147.

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