Valuation of Loss Firms in a Knowledge-Based Economy

53 Pages Posted: 21 Oct 2006

See all articles by Masako N. Darrough

Masako N. Darrough

Baruch College - CUNY

Jianming Ye

City University of New York - Baruch College - Stan Ross Department of Accountancy

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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

Darrough, Masako N. and Ye, Jianming, Valuation of Loss Firms in a Knowledge-Based Economy. Review of Accounting Studies, 2006, Available at SSRN: https://ssrn.com/abstract=939107

Masako N. Darrough (Contact Author)

Baruch College - CUNY ( email )

One Bernard Baruch Way
New York, NY 10010
United States
646 312 3183 (Phone)
646 312 3161 (Fax)

Jianming Ye

City University of New York - Baruch College - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

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