Valuation of Loss Firms in a Knowledge-Based Economy
53 Pages Posted: 21 Oct 2006
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Valuation of Loss Firms in a Knowledge-Based Economy
Valuation of Loss Firms in a Knowledge-Based Economy
Abstract
Recent research in accounting has documented a substantial increase in the number of loss firms. Existing theories on the valuation of loss firms are based on adaptation/abandonment options or limited liability, assuming that these firms are operationally distressed. In this paper, we show that many loss firms do not fit this stereotype and identify the primary value drivers of this new type of loss firms. Our analysis helps resolve the puzzling negative relation between earnings and market value documented in prior research. Overall, our findings underscore the importance of 'hidden assets' or intangibles in the study of loss firms.
Keywords: loss firms, accounting conservatism, R&D expensing, sustainability
JEL Classification: G12, G33, M41, M44
Suggested Citation: Suggested Citation
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