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International equity valuation: the relative importance of country and industry factors versus company-specific financial reporting information



The relative importance of country- and industry-specified factors vis-à-vis company-specific financial statement–based information in explaining equity valuation multiples in an international setting is examined. Both country-specific effects via previously identified variables and an indicator variable approach are analysed. While company-specific factors are predominant in explaining cross-sectional differences in valuation, country and industry factors have sizable incremental explanatory power over them; the latter are not independent, so their relative importance is influenced by how we adjust for this commonality. Using country indicators provides larger incremental explanatory power than using country-specific factors, suggesting that previously identified factors may be measured with sizeable error or omitted factors are important.