| Summary: | 碩士 === 國立臺北大學 === 會計學系 === 98 === Due to the global economic recession and highly competitive in industries in recently years, the number of deficit public companies goes slightly higher. So, how to evaluate loss firms is more important than before. Jan and Ou (1995) found that the relationship of earnings and stock price does not have same essences for profit (loss) firms. It means that earnings are positively associated with stock price for profit firms and vice versa. After considering the book value of equity, the abnormal phenomenon can be erased (Collins, Pincus and Xie, 1999). But some previous research suggests that the anomaly on the relationship between price and earnings of companies reporting negative earnings still exist. Therefore, our study will examine the value drivers of evaluating loss firms.
The purpose of this study was two-fold. The first purpose was to examine the association between earnings and stock prices by using the Ohlson model. The samples in this study were classified into three sample groups, which are total samples, positive earning firms and negative earning firms, to examine the possible differential impacts of earnings and book value of equity on stock price among the three sample groups.
Following the first stage, the second purpose was based on the view of earnings components, which R&D expenditures and earnings before R&D expenditures are main essential factors. This stage would also consider the book value of equity, holding of internal funds and ability of raising funds of the firm to examine their effective value on the stock price. Furthermore, the three groups are unrestricted R&D expenditures samples, which contain negative earnings samples mainly and also include total samples and positive earnings samples as comparison samples. Besides, we classified the samples into restricted positive R&D samples as well, including positive and negative earning firms, to examine if the relations between stock price and potential value drivers of loss firms would bring different implications by different earning firms. Finally, to evaluate the consideration of different industries, we classified R&D sample of positive-earning firms and negative-earning firms into four sub-samples, that are further sorted by electronic industry and non-electronic industry. The result of this stage includes:
1. Evaluation based on earnings valuation model
For profit firms, investors of Taiwan’s stock market take importance on earnings and the book value of equity. However, they focus more on the book value of equity instead of earnings for loss firms. But the abnormal relationship between earnings and stock prices will not disappear because of the book value of equity.
2.Evaluation based on the view of earning components and the maintenance of value drivers of loss firms
(1) According to the unrestricted positive R&D sample, investors focus on the book value of equity for loss firms only. Contrarily, they take importance the earnings and the book value of equity for profit firms. This phenomenon could be more obvious in restricted R&D sample.
(2) No matter R&D expenditures are restricted or not, the result shows that R&D expenditures are positively (negatively) associated with stock price for loss (profit) firms, In other words, R&D expenses are relevant information and engaging in R&D activities could be helpful at creating future earnings.
(3) In unrestricted positive R&D sample, we find that the coefficient estimate on cash per share is significantly positive for loss firms but insignificantly different from zero in unrestricted positive R&D sample of loss firms. Besides, considering the difference of industry specifics, the result shows that cash per share is more relevant for loss firms in electronic industry.
(4) For the proxy of the ability of raising funds, we found the evidence that issuing bonds are more relevant to restricted positive R&D of negative-earning sample, especially for electronic industry. Equity issuance is always positive to stock price and most relevant to electronic firms across all samples. Besides, the fixed assets/total assets are positively associated with stock price for restricted R&D sample of positive-earnings firms, especially for non-electronic industry. Therefore, if the earnings or samples are not classified, it will be difficult to understand why these loss firms still operate and the implication behind.
In summary, the factors of evaluating loss firms would not limited on earnings or book value of equity thoroughly. For example, loss firms could recover from involving in R&D activities, holding sufficient internal funds for compensating the loss, or ability of raising funds, which could be positive for both valuation on loss firms and stock prices.
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