Accounting for investments and the relevance of losses to firm value

Hai Wu; Neil Fargher; Sue Wright

doi:10.1016/j.intacc.2010.01.005

Accounting for investments and the relevance of losses to firm value

Hai Wu^*, Neil Fargher, Sue Wright

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

21 Citations (Scopus)

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.

Original language	English
Pages (from-to)	104-127
Number of pages	24
Journal	International Journal of Accounting
Volume	45
Issue number	1
DOIs	https://doi.org/10.1016/j.intacc.2010.01.005
Publication status	Published - Mar 2010

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10.1016/j.intacc.2010.01.005

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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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Accounting for investments and the relevance of losses to firm value

Abstract

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