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This research investigated the market conditions caused by IPO advertising by examining the impact of IPO advertising, based on the US stock market from 1986 to 2009. The relationship between advertising intensity in the IPO year and the degree of IPO underpricing was examined. It was found that an increase in advertising intensity around an IPO event increases the initial returns. Simultaneously, however, advertising intensity around an IPO event also increases the degree of overvaluation, which raises the question as to whether advertising serves primarily as a mechanism to convey a firm’s true value to investors. The theoretical valuation of IPO and the relation between IPO advertising and the degree of stock overvaluation are discussed. Based on the Peasnell’s (1982) residual-income valuation framework (henceforth RIV), IPO advertising was proved to cause stock price to be more overvalued in the secondary market: a positive relationship was found between advertising and the degree of stock overvaluation relative to its theoretical value. Accordingly, an alternative hypothesis, that advertising inflates the short-run stock price, was proposed. The results of this study are consistent with the view of Purnanandam and Swaminathan (2004), namely that the stock price of newly listed firms can be overvalued.

A one-year-ahead price change forecasting model is proposed based on the fundamental analysis to examine the relationship between equity market value and financial performance measures. By including book value and six financial statement items in the valuation model, current firm value can be determined and the estimation error can predict the direction and magnitude of future returns of a given portfolio. The six financial performance measures represent both cash flows – cash flows from operations (CFO), cash flows from investing (CFI), and cash flows from financing (CFF) – as well as net income – R&D expenditures (R&D), operating income (OI), and adjusted nonoperating income (ANOI). This study uses a 10-year sample of the Taiwan information electronic industry (1995–2004 with 2,465 firm-year observations). We find hedge portfolios (consisting of a long position in the most underpriced portfolio and an offsetting short position in the most overpriced portfolio) provide an average annual return of 43%, more than three times the average annual stock return of 12.6%. The result shows the estimation error can be a good stock return predictor; however, the return of hedge portfolios generally decreases as the market matures.

Internal capital markets of diversified firms have been associated with inefficient allocation of investment funds across divisions, leading to value losses. Utilizing a sample of diversified firms that adopted or eliminated Residual Income (RI) plans between 1990 and 2009, we show that adoptions of these plans mitigate investment distortions and lead to value gains. Following the adoption of RI plans, diversified firms start allocating investment funds based on growth opportunities of their divisions. RI plan adopters lower their divisional investment levels, especially in segments with below-average growth opportunities. The overall investment allocation efficiency improves, and the diversification discount diminishes after the adoption of RI plans. However, RI plans appear to be used only as temporary tools for assessing corporate performance. The plans are adopted primarily by firms expected to immediately generate plan bonuses for management, and they are frequently eliminated by firms with bad accounting performance and low managerial bonuses. The study contributes to the literature on organizational efficiency, internal capital markets, and on the importance of measures based on economic profits or RI.

This chapter focuses on information efficiency as provided by fair value accounting (FVA) and corporate governance (CG) practices in an emerging market. Positive accounting theory was adopted as an empirical model to test the relationship between information efficiency and stock prices. Data for the period 2007–2020 from 576 listed firms on the Stock Exchange of Thailand were collected, tested, and analyzed using a fixed effect estimator. The results indicate that investors in the stock market trust the use of publicized efficient information as provided by FVA and CG practices in making their investment decisions, when FVA and CG proxies were found to significantly influence stock prices. Hence, this evidence implies that information efficiency leads to better firm values in an emerging market.

The purpose of the study is to investigate the impact of tax planning activities on the firm value of FTSE 100 firms. We employ static and dynamic panel regression analyses on a sample of 70 companies drawn from the UK FTSE 100 over a five-year period (2006–2010). Empirical evidence suggests that tax planning activity as measured by the proxies based on reported accounting information has a negative impact on firm value. Moreover, the results from the Generalized Methods of Moments (GMM) models suggest significant dynamics in firm value, i.e., the current firm value is positively affected by the past firm value. The findings imply the need for a full review of the adequacy and relevance of tax accounting disclosure and therefore have policy implications for accounting standard setters.

This study investigates the efficiency of value relevance and faithful representation when stock market price derivates from its firm value to the investigated IT companies listed in FTSE Taiwan 50. The empirical investigation reveals one financial indicators: Return on equity (ROE) has explanatory ability among seven financial indicators, earnings per share (EPS), book value (BV), dividend yield (Div.), price–earnings ratio (P/E), ROE, return on assets (ROA), and return on operating asset (ROOA) to both sampled companies, United Microelectronics Corporation, UMC, (2303) and Taiwan Semiconductor Manufacturing Company Limited, TSMC, (2330). Furthermore, the empirical results indicate that the higher order moments, skewness and kurtosis, of price deviation do not provide a reliable prediction or explanatory power for stock price trends.

This paper looks at the research to date on the future of broadly granted stock options (options granted to at least half the full-time employees of a company). In the U.S., granting options broadly became popular in the late 1990s, but has lost some of its appeal in the wake of stock market declines, accounting changes, and increased shareholder concerns about dilution. The data indicate a significant minority of companies will change their plans, but a substantial majority will keep them. The data also indicate changes in accounting rules will not affect stock prices and that broadly granted options are better for corporate performance than narrowly granted options.