- The Experience
- The Programs
- MBA Program
- MSx Program
- PhD Program
- Executive Education
- Stanford Ignite
- Research Fellows Program
- Summer Institute for General Management
- Stanford LEAD Certificate: Corporate Innovation
- Stanford Innovation & Entrepreneurship Certificate
- Executive Program for Nonprofit Leaders
- Executive Program in Social Entrepreneurship
- Executive Program for Education Leaders
- Stanford go.to.market
- Faculty & Research
- Insights
- Alumni
- Events
You are here
Relative Valuation Roles of Equity Book Value and Net Income as a Function of Financial Health
Relative Valuation Roles of Equity Book Value and Net Income as a Function of Financial Health
1998Working Paper No. 1404
This study tests predictions that pricing multiples on an incremental explanatory power of equity book value (net income) increase (decrease) as financial health decreases. Tests using a sample of 396 bankrupt firms and a larger, pooled sample yield inferences consistent with predictions. Findings are robust to inclusion of controls for industry, size, return-on-equity, and volatility of equity returns. Equity book value and net income multiples and incremental explanatory power vary predictably across three illustrative industries, selected based on the likely extent of unrecognized intangible assets.