The Value Drivers of US Internet Retailers

Abstract

This study empirically explores the role of web traffic in explaining the stock prices of e-tailers. In particular, we hypothesize that the actual buy rate is a key value driver of Internet retailers because it represents the direct performance of these firms in the electronic market place. Our empirical analysis indicates that the buy rate is strongly related to the market value of e-tailers in a positive way after controlling for the roles of such financial valuation measures as net income, revenue, sales and marketing expenses, research and development costs, and book value.

Capitalizing R&D expenses versus disclosing intangible information

“…Industry-specific intangibles have been found to be valuerelevant: population growth and market penetration ratios for wireless communication firms (Amir and Lev 1996); web traffic measures for internet firms (Demers and Lev 2001;Trueman et al 2000;Yang et al 2003); drug development stages and product profiles for pharmaceutical firms (Guo et al 2005;Xu et al 2007). These single-industry studies suggest that disclosing industry-specific intangibles will have incremental value-relevance for firms in the aforementioned industries.…”

Innovation capability and post-IPO performance

“…Intangible assets are shown to be value-relevant. It is reported that market penetration measure is priced for firms in the wireless communications industry (Amir and Lev 1996), internet traffic measures are important in determining the share prices of internet companies (Trueman et al 2000;Demers and Lev 2001;Yang et al 2003), and product life cycle is relevant to the market valuation of R&D spending (Chiang and Mensah 2004). In an international setting, organization capital is found to enhance both productivity and value in Japan (Ramirez and Hachiya 2006).…”

How does research and development investment affect market value?

“…In relation to this, Palepu et al (2000) proposed that the better the financial Downloaded by [University of Haifa Library] at 00:23 02 November 2014 performance is, the higher the company market value will be. Yang et al (2003) pointed out that financial performance does have positive effects on company market value. Likewise, Banker et al (2004) indicated that financial performance is considered a key, short-term measure that is a leading indicator of future market value.…”

“…First, this is because financial performance such as net income comprises many accounting items and mixes too much information together. Yang et al (2003) and Liang and Yao (2005) decomposed the net income into gross profit, marketing expenses, R&D expenses, and administrative expenses, and indicated that the component items of net income are all significantly correlated with the market value. Second, based on the wellknown residual income model proposed by Ohlson (1995), market value equals the book value adjusted for current abnormal earnings and other information.…”

“…Second, based on the wellknown residual income model proposed by Ohlson (1995), market value equals the book value adjusted for current abnormal earnings and other information. Typically, researchers (Keating et al, 2001;Trueman et al, 2000;Yang et al, 2003) expand the valuation model by including both financial and non-financial information to represent missing components from the book value. In the meantime, they argued that book value would positively impact a company's market value.…”