Valuation of loss firms in a knowledge-based economy

Masako Darrough () and Jianming Ye ()
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Masako Darrough: Baruch College-CUNY
Jianming Ye: Baruch College-CUNY

Review of Accounting Studies, 2007, vol. 12, issue 1, No 3, 93 pages

Abstract: 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; G12; M41 (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s11142-006-9022-z

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