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Dividends, research and development expenditures, and the value relevance of book value for UK loss-making firms
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Jiang, Wei and Stark, Andrew W. (2013) Dividends, research and development expenditures, and the value relevance of book value for UK loss-making firms. British Accounting Review, Volume 45 (Number 2). pp. 112-124. doi:10.1016/j.bar.2013.03.003 ISSN 0890-8389.
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Official URL: http://dx.doi.org/10.1016/j.bar.2013.03.003
Abstract
We extend prior research on the value relevance of accounting information for loss-making firms by allowing the coefficient of book value to vary across three distinct set of loss-making firm observations in our valuation model. Our key findings are, first, that book value is a less important determinant of equity value for either high R&D-intensive firms or dividend-paying firms, relative to firms with low R&D-intensity and zero dividends. Prior literature suggests that book value is a strong indicator of firm value for loss-making firms. This reasoning stems from book value’s role as: (i) a proxy for the value of the possibility of abandoning or adapting the firms’ net assets; and/or (ii) a proxy for expected future normal earnings. Our work suggests that this prior literature does not fully capture the valuation role of book value for loss-making firms. Second, we also find that dividends are value relevant, but generally only when the valuation role of book value is contextualised by allowing its coefficient to vary across high R&D-intensive firms, and dividend-paying, loss-making firms.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||
| Journal or Publication Title: | British Accounting Review | ||||
| Publisher: | Academic Press | ||||
| ISSN: | 0890-8389 | ||||
| Official Date: | 24 March 2013 | ||||
| Dates: |
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| Volume: | Volume 45 | ||||
| Number: | Number 2 | ||||
| Page Range: | pp. 112-124 | ||||
| DOI: | 10.1016/j.bar.2013.03.003 | ||||
| Status: | Peer Reviewed | ||||
| Publication Status: | Published | ||||
| Access rights to Published version: | Restricted or Subscription Access |
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