Speed of Learning About Firms' Profitability and Their Price Multiples: A Global Perspective
41 Pages Posted: 7 Mar 2008 Last revised: 14 Nov 2015
Date Written: March 3, 2008
Abstract
We present direct global evidence of declining analyst forecast errors, return volatility, and M/B ratio with progression in a firm’s age in the context of a learning model which focuses on the positive numerator effects of uncertainty about the firm’s profitability. The convex relation between a firm’s age and its M/B is pervasive over time and across countries after controlling for future growth rate, leverage, size, dividend policy, and future return. Strict enforcement of insider trading laws, higher feasibility of short selling, and dominance of local versus foreign investors increase the learning speed and fuel quicker achievement of long run equilibrium valuations.
Keywords: learning, profitability, firm valuation
JEL Classification: G12, G14, G15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Why is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan
By Jun-koo Kang and René M. Stulz
-
By Gur Huberman
-
Home Bias and the High Turnover
By Linda L. Tesar and Ingrid M. Werner
-
The Determinants of Cross-Border Equity Flows
By Richard Portes and Hélène Rey
-
Corporate Governance and the Home Bias
By Lee Pinkowitz, Rohan Williamson, ...
-
The Determinants of Cross-Border Equity Flows
By Richard Portes and Hélène Rey
-
The Portfolio Flows of International Investors, I
By Kenneth Froot, Paul G.j. O'connell, ...
-
The Information Content of International Portfolio Flows
By Kenneth Froot and Tarun Ramadorai
-
The Information Content of International Portfolio Flows
By Kenneth Froot and Tarun Ramadorai