Determinants of the length of time a firm’s book-to-market ratio is greater than one

Determinants of the length of time a firm’s book-to-market ratio is greater than one This paper examines the factors associated with the length of time that a firm’s market value is below its book value. From 1990 to 2010, approximately 19 % of firm quarter observations have a market value below their book value, and 46 % experience a market value below its below book value for more than 1 year. I investigate firm characteristics—accounting aggressiveness, asset liquidity, debt covenants, and cash flows; firm actions—merger, liquidation or an internal adaptation of resources; and accounting rules and their association with the length of time a firm’s book-to-market (BTM) ratio is greater than one. This paper extends the research on the adaptation option and also brings to light the unusual sample of observations that persist with a BTM ratio greater than one. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Determinants of the length of time a firm’s book-to-market ratio is greater than one

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-014-0445-5
Publisher site
See Article on Publisher Site

Abstract

This paper examines the factors associated with the length of time that a firm’s market value is below its book value. From 1990 to 2010, approximately 19 % of firm quarter observations have a market value below their book value, and 46 % experience a market value below its below book value for more than 1 year. I investigate firm characteristics—accounting aggressiveness, asset liquidity, debt covenants, and cash flows; firm actions—merger, liquidation or an internal adaptation of resources; and accounting rules and their association with the length of time a firm’s book-to-market (BTM) ratio is greater than one. This paper extends the research on the adaptation option and also brings to light the unusual sample of observations that persist with a BTM ratio greater than one.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Mar 18, 2014

References

  • Searching for value relevance of book value and earnings: a case of premium versus discount firms
    Aleksanyan, M; Karim, K
  • Financial ratios, discriminant analysis and the prediction of corporate bankruptcy
    Altman, E
  • Earnings quality in UK private firms: comparative loss recognition timeliness
    Ball, R; Shivakumar, L
  • Relative valuation roles of equity book value and net income as a function of financial health
    Barth, E; Beaver, W; Landsman, W
  • The conservatism principle and the asymmetric timeliness of earnings
    Basu, S

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