Article2010

Accounting for investments and the relevance of losses to firm value

29 citations0/0 files storedThe International Journal of Accounting

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Financial Reporting and Valuation Research Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting

Abstract

Recent research has documented investment in research and development as a key driver of the market value of currently unprofitable firms (hereafter loss firms) in a knowledge-based economy. We broaden this argument to consider the influence of accounting for investments in general on the relation between current profitability and firm value for loss firms. Specifically, in the context of a resource-based economy, we find that exploration costs, cash flow measures of investment, and research and development costs help to explain the value of loss firms and reduce the negative relation between current profitability and firm value.

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References

1973Risk, Return, and Equilibrium: Empirical Tests 1995Earnings, Book Values, and Dividends in Equity Valuation*1985Evaluating Natural Resource Investments 1995The information content of losses 1995Valuation and Clean Surplus Accounting for Operating and Financial Activities*1998Relative valuation roles of equity book value and net income as a function of financial health 1999Equity Valuation and Negative Earnings: The Role of Book Value of Equity 1998The Value Relevance of Intangibles: The Case of Software Capitalization

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2022Enhancing Firm Value through the Lens of ESG Materiality: Evidence from the Banking Sector in OECD Countries 2014What Explains the Valuation Difference between Intangible‐intensive Profit and Loss Firms?2016Exploration intensity, analysts’ private information development and their forecast performance

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