Accounting for investments and the relevance of losses to firm value |
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Authors: | Hai Wu Neil Fargher |
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Institution: | a Department of Accounting and Finance, Faculty of Business and Economics, Macquarie University, Sydney, Australia b College of Business and Economics, The Australian National University, Canberra, Australia |
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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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Keywords: | G12 M41 |
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