The interpretative ability of coefficient R2 to calculate the firm value

Chara Theodoraki ()
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Chara Theodoraki: Department of Business Administration, University of Patras

SPOUDAI Journal of Economics and Business, 2014, vol. 64, issue 1, 29-41

Abstract: Several studies have focused on the relationship between the R2 and the firm value. They have tried to explain how different values of R2 affect the firm value. In this paper we examine this relationship for the Greek companies listed on the Greek Stock Exchange, analyzing a sample of 135 listed companies for the 2004-2010 period. The results reveal that R2 is inversely related to the firm value. This is consistent with the model of Dow and Gorton (1997). Moreover, we found that companies with high R2 have significantly higher returns than those with low R2, over a two year period time, which is inconsistent with the findings of Stowe and Xing (2011). Moreover, this research shows that the investment decisions are likely to be based more on investor psychology rather than an analysis of firm-specific information.

Keywords: R2; firm value; Tobin’s Q; long run performance. (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spd:journl:v:64:y:2014:i:1:p:29-41

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