Do Positive P/E Firms and Negative P/E Firms Differ in Characteristics and Performance?

Abstract

This paper evaluates whether performance of positive P/E firms are significantly different from negative P/E firms. It also investigates the characteristics of positive P/E firms and negative P/E firms and determine whether the differences in characteristics are statistically significant. Both Mood Median test and Kolmogorov–Smirnov (K-S) test are used in this paper to examine the significance of results on data gathered for four Asian countries (China, Japan, South Korea and Singapore) for the period from 2004 to 2014. Findings of this study show that the performance between positive P/E firms and negative P/E firms was significantly different, especially in terms of stock price returns, EBIT margin, current ratio, cash, assets turnover, EPS growth, EBIT growth, revenue growth, and market capitalization. Such results are partly consistent with previous studies and contribute to this area of study by examining new characteristics between firms with positive P/E and negative P/E.