Relative valuation roles of equity book value and net income as a functionof financial health

This study tests predictions that pricing multiples on and incremental expl anatory power of equity book value (net income) increase (decrease) as fina ncial hearth decreases. Tests using a sample of 396 bankrupt firms and test s using a larger, pooled sample both yield inferences consistent with predi ctions. Findings are robust to inclusion of controls for industry, size, re turn-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 unre cognized intangible assets. (C) 1998 Elsevier Science B.V, All rights reser ved. JEL classification: M4; G33; C2.