TY - JOUR
T1 - Accounting for investments and the relevance of losses to firm value
AU - Wu, Hai
AU - Fargher, Neil
AU - Wright, Sue
PY - 2010/3
Y1 - 2010/3
N2 - 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.
AB - 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.
KW - Accounting conservatism
KW - Accounting for exploration costs
KW - Loss firms
UR - http://www.scopus.com/inward/record.url?scp=77549083798&partnerID=8YFLogxK
U2 - 10.1016/j.intacc.2010.01.005
DO - 10.1016/j.intacc.2010.01.005
M3 - Article
SN - 1094-4060
VL - 45
SP - 104
EP - 127
JO - International Journal of Accounting
JF - International Journal of Accounting
IS - 1
ER -