Determinants of the length of time a firm’s book-to-market ratio is greater than one

Mitchell Oler ()

Review of Quantitative Finance and Accounting, 2015, vol. 45, issue 3, 509-539

Abstract: This paper examines the factors associated with the length of time that a firm’s market value is below its book value. From 1990 to 2010, approximately 19 % of firm quarter observations have a market value below their book value, and 46 % experience a market value below its below book value for more than 1 year. I investigate firm characteristics—accounting aggressiveness, asset liquidity, debt covenants, and cash flows; firm actions—merger, liquidation or an internal adaptation of resources; and accounting rules and their association with the length of time a firm’s book-to-market (BTM) ratio is greater than one. This paper extends the research on the adaptation option and also brings to light the unusual sample of observations that persist with a BTM ratio greater than one. Copyright Springer Science+Business Media New York 2015

Keywords: Adaptation option; Aggressive accounting; Accounting standards; Conservatism; Debt; Restructuring; G34; M21; M41 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11156-014-0445-5

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