The value relevance of accounting variables and analysts’ forecasts

Patricia Mui‐Siang Tan and Chee Yeow Lim

Review of Accounting and Finance, 2007, vol. 6, issue 3, 233-253

Abstract: Purpose - This paper seeks to address the value relevance of summary accounting measures and fundamental income statement variables in the market valuation of biotech firms. Design/methodology/approach - A biotech firm's stock price was related to its underlying financial accounting variables. Using the Ohlson model, the linear function of book value and earnings was employed, and the basic model was augmented with additional accounting variables. These accounting variables may provide information relevant for forming an approximation on the present value of expected future abnormal earnings. Findings - Results show non‐linearities in the pricing of accounting variables Both book value and earnings are value relevant, but positive earnings are positively priced while negative earnings are negatively priced. R&D spending and selling, general and administrative expenses are also priced as assets for loss‐reporting firms, and as expenses for profit‐reporting observations. Including analysts’ forecasts of future earnings and long‐term growth rate in the model results in an insignificant increase in the explanatory power of the regressions. Research limitations/implications - Future research could attempt to examine the role of non‐financial variables which can proxy for the soft variables and intangibles like strategic alliances and product pipeline. Decomposing revenue into product sales, interest income and collaborative research revenue may further enhance our understanding on the determinants of the market value of biotech stocks. Originality/value - This paper provides insights into the valuation of biotechnology stocks. Results show non‐linearities in the pricing of summary accounting measures and fundamental income statement variables.

Keywords: Market value; Intangible assets; Biotechnology; Accounting systems; Income; Financial forecasting (search for similar items in EconPapers)
Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:v:6:y:2007:i:3:p:233-253

DOI: 10.1108/14757700710777992

Access Statistics for this article

Review of Accounting and Finance is currently edited by Nawazish Mirza

More articles in Review of Accounting and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().