Price to Book Ratio as a Valuation Model: An Empirical Investigation*

Abstract

This paper examines the theoretical and empirical validity of the price-to-book ratio that has received considerable attention recently. Models are developed on the basis of Gordon’s constant dividend growth model. Cross-sectional and longitudinal analyses are carried out on Singapore data. It is found that models fit well, and the identified factors explain a significant portion of the variability in the ratio, with dividend being the prime value-driver. Economic regime shifts also have significant effects. Reasons for the lack of significance of other factors require further investigation.