2015
DOI: 10.1111/jbfa.12108
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What Explains the Valuation Difference between Intangible‐intensive Profit and Loss Firms?

Abstract: Prior research suggests that loss firms are valued based on their abandonment/adaptation option values, while profit firms are valued as going concerns. However, conservative accounting treatment of expensing of R&D leads many R&D‐intensive firms to report losses even though they are not in financial distress. In this paper we investigate the difference in valuation of profit and loss firms that invest in intangibles, either through internal development (R&D) or purchases. The accounting treatment for internal… Show more

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Cited by 26 publications
(19 citation statements)
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“…The negative correlation possibly indicates a dichotomous firm choice of either developing in-house intangibles or acquiring such intangibles from third party vendors and/or acquisitions. The result is consistent with Ciftci and Darrough (2015) who arrive at a similar result using a sample of 194,263 firm-year observations. This table shows pair-wise correlation coefficients and corresponding p values of regression variables.…”
Section: Sample Descriptivessupporting
confidence: 92%
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“…The negative correlation possibly indicates a dichotomous firm choice of either developing in-house intangibles or acquiring such intangibles from third party vendors and/or acquisitions. The result is consistent with Ciftci and Darrough (2015) who arrive at a similar result using a sample of 194,263 firm-year observations. This table shows pair-wise correlation coefficients and corresponding p values of regression variables.…”
Section: Sample Descriptivessupporting
confidence: 92%
“…Several issues with regards to earnings informativeness and/or market efficiency may affect empirical tests of association between PVGO and intangibles. Ciftci and Darrough (2015) indicate that unreported intangibles (i.e. R&D) reduce earnings informativeness through unnecessary expensing.…”
Section: Literature Reviewmentioning
confidence: 98%
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“…Hong Su and Wells (2015) find that the distinction in the recognition of internally generated intangibles (expensed) and externally acquired ones in IFRS is hardly useful. Ciftci et al (2015) look at the phenomena of artificial losses created by R&D expensing for firms richer in intangibles and find valuation differences explained by their abandonment option while R&D intensive profit and loss firms' differences are explained in conservative accounting. Gu and Wang(2005) have measured informative analysts' forecasts against the information complexity of a firm and realized the importance of intangible assets of the firm.…”
Section: Information Structure Intangibles and Non-financial Informamentioning
confidence: 99%