Tech Stock Valuation: Investor Psychology and Economic Analysis
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Table of contents
- Copyright Pageiv
- CONTENTSvii
- ACKNOWLEDGMENTSxiii
- PREFACExv
- Chapter 1. The Tech Bubble1
- I. The Nifty 502
- II. NASDAQ 100 as the New Nifty 505
- III. As Technology Goes, So Goes the NASDAQ 10015
- IV. How High is Up?21
- V. Conclusion25
- VI. References26
- Chapter 2. What Caused the Tech Bubble?29
- I. Efficient Market Hypothesis30
- II. The Time Series of Stock Prices31
- III. Daily Returns32
- IV. Random Walk Concept35
- V. Random Walk Research37
- VI. Stock Market Bubbles38
- VII. Stockholders and the Agency Problem39
- VIII. Risk Management Problems40
- IX. Investment Horizon Problems41
- X. Accounting Information Problems43
- XI. Stock Fraud44
- XII. Fraud on the Internet46
- XIII. Conclusion48
- XIV. References49
- Chapter 3. Investment Advice on the Internet51
- I. Buy–Sell Recommendation Research52
- II. Investment Information on the Internet54
- III. The Motley Fool (TMF)57
- IV. TMF’s Rule Breaker Portfolio58
- V. Other TMF Portfolios61
- VI. Methodology65
- VII. All Portfolio Returns68
- VIII. Individual Portfolio Returns72
- IX. Conclusion78
- X. References79
- Chapter 4. A Dissertation on Tulips and America Online81
- I. How Much is a Tulip Worth?82
- II. The Tulip Mania83
- III. Estimating 17th Century Tulip Prices84
- IV. Psychology of Manias87
- V. The Late-1990s Internet Stock Mania88
- VI. AOL as a Growth Stock90
- VII. AOL Risk Assessment94
- VIII. AOL Growth Expectations94
- IX. AOL Valuation as a Growth Stock95
- X. AOL as a Value Stock96
- XI. AOL Customer Value97
- XII. Private–Market Value98
- XIII. Value of AOL–Time Warner98
- XIV. Conclusion100
- XV. References101
- Chapter 5. The Crash of 2000–2002 and Imminent Rebound103
- I. Mean Reversion in Business Profits104
- II. Business Cycles vs. Market Cycles105
- III. Return Reversal in the S&P 500 and the NASDAQ106
- IV. Nonoverlapping Period Analysis112
- V. Return Reversal or Simply Regression to the Mean?114
- VI. Overreaction Hypothesis116
- VII. What About the Japanese Experience?118
- VIII. Conclusion123
- IX. References124
- Chapter 6. Stock–Price Effects of Research and Development Expenditures125
- I. R&D as a Source of Intangible Capital126
- II. Corporate Governance, R&D, and R&D Effectiveness128
- III. R&D Spending by Industry Group131
- IV. Corporate leaders in R&D Spending134
- V. Measuring R&D Capital Using Tobin’s q Ratio139
- VI. The Sample141
- VII. Effects of R&D on Tobin’s q147
- VIII. Firm Size Effects149
- IX. Institutional Ownership and R&D Effectiveness151
- X. Conclusion153
- XI. References155
- Chapter 7. Valuation Effects of Patent Quality157
- I. Usefulnesness of Nonfinancial Information158
- II. Questions about Long-Term Benefits of R&D159
- III. Patent Statistics161
- IV. Patent Citations162
- V. Scientific Merit of Patents163
- VI. Data165
- VII. Methodology169
- VIII. Stock–Price Effects of Patent Quality: U.S. Companies170
- IX. U.S. Companies: Effects of Size and Growth Opportunities172
- X. Patent Quality in Japan Versus the United States176
- XI. Valuation Effects of Patent Quality for Japanese Companies178
- XII. Conclusion179
- XIII. References180
- Chapter 8. Goodwill Write-Off Decisions: Do They Matter?183
- I. Goodwill184
- II. New Goodwill Accounting Standards185
- III. Goodwill Write-Off Decisions187
- IV. Sample189
- V. Estimation Method192
- VI. Announcement Period Effects194
- VII. Announcement Effects and Contemporaneous Announcements196
- VIII. Announcement Effects by Industry Group197
- IX. Preannouncement and Postannouncement Period Effects198
- X. Conclusion201
- XI. References203
- Chapter 9. Shark Repellents and Research and Development: Does Management Have a Long-Run Perspectiv205
- I. Shark Repellents206
- II. Data208
- III. Long-Term Performance and Financial Policies209
- IV. Measures of Long-Term Performance and Financial Policies210
- V. Nonparametric Tests of Relative Performance212
- VI. Nonparametric Results for Industry-Adjusted Performance214
- VII. Measures of Firm Financial Policy218
- VIII. Nonparametric Results for Industry-Adjusted Financial Policy220
- IX. Regression Model Specification223
- X. Regression Results for Changes in Firm Performance224
- XI. Regression Results for Changes in Financial Policy Decisions224
- XII. Conclusion225
- XIII. References227
- Chapter 10. Corporate Governance and the Legal Environment229
- I. Role Played by Boards of Directors230
- II. Corporate Governance Mechanisms Inside the Firm233
- III. Franchise Agreements235
- IV. Strategic Alliances236
- V. Ownership Structure as a Corporate Governance Mechanism237
- VI. Is Ownership Structure Endogenous?241
- VII. Federal Law Enforcement Actions as Tools for Corporate Governance242
- VIII. Administration of Federal Laws and Regulations244
- IX. Valuation Effects of Enforcement Actions245
- X. Previous Studies246
- XI. Data247
- XII. Estimation Method249
- XIII. Announcement Effects by Type of Enforcement Activity251
- XIV. Announcement Effects by Violation Category254
- XV. Announcement Effects by Industrial Classification257
- XVI. Conclusion261
- XVII. References263
- INDEX265
The contribution of research and development to a company's market value has grown considerably in recent years. In the mid-1970s, accountants were able to capture on their ledgers 90-95% of a firm's book value, but by 2000 the importance of intangible assets had grown to the point where they could account for only 13-15%. Financial economists and accountants have investigated the link between a firm's market value and its R&D spending, and various factions advocate a variety of positions on the amount and rate of investment, investors' ability to capture returns on that investment, and ways to measure value, investment, and returns.
'Tech Stock Valuation' extends the R&D literature by providing detailed direct evidence on the market value implications of inventive and innovative output. Specifically, the book demonstrates that stock-price effects of patent output are most pronounced in the case of of high-quality patents, where patent quality is measured by scientific merit. Scientific measures of patent quality give tech stock investors and R&D managers a valuable new tool that can be used to measure R&D program effectiveness. At the same time, it gives investors a new tool to help them assess the value of hard-to-measure intangible assets.
*Provides detailed direct evidence on the market value implications of inventive and innovative output
*Based on recent research, much of which Dr. Hirschey has pioneered
*Gives financial professionals a new tool for assessing R&D quality and its relation to market valuation
'Tech Stock Valuation' extends the R&D literature by providing detailed direct evidence on the market value implications of inventive and innovative output. Specifically, the book demonstrates that stock-price effects of patent output are most pronounced in the case of of high-quality patents, where patent quality is measured by scientific merit. Scientific measures of patent quality give tech stock investors and R&D managers a valuable new tool that can be used to measure R&D program effectiveness. At the same time, it gives investors a new tool to help them assess the value of hard-to-measure intangible assets.
*Provides detailed direct evidence on the market value implications of inventive and innovative output
*Based on recent research, much of which Dr. Hirschey has pioneered
*Gives financial professionals a new tool for assessing R&D quality and its relation to market valuation