Abstract
Brazilian accounting principles permit companies to capitalize expenditures on research and development, specifically as deferred charges. Therefore, the objective of this article is to analyze the effects of (deferred) investments on the value-relevance of the earnings and net equity of companies operating in the so-called new and old economies, with the sectors of the old economy chosen as comparison. The more specific objective is to examine: (i) the explanatory power of earnings and net equity; (ii) the incremental explanatory power of deferred charges, in which the stock price is a function the net earnings plus net equity less deferred charges. This study does not seek to refute or prove a specific model, but rather only to gather evidence to permit accepting or rejecting the hypotheses formulated and to offer a response to the research question. The results show that accounting information, for both sectors, is relevant to value the price of shares. However, the results on the explanatory power of deferred charges run counter to the expected results.
Highlights
F accounting variables are used as proxies to appraise the prices and return of companies
We estimated regressions between 1995 and 2003, and used the R2 as a metric to evaluate the explanatory power of the variables, finding: (i) the explanatory power of earnings and net equity; and (ii) the incremental explanatory power of deferred charges, in which the stock price is a function of net earnings and equity minus deferred charges
It is important to stress that the results and expectations presented here are the fruit of reflection on the relationship between current stock prices and the accounting numbers of the Brazilian firms analyzed
Summary
F accounting variables (profit and net equity) are used as proxies to appraise the prices and return of companies. The authors asked: “[...] can accounting information be used in predicting the value of high-tech firms?”, concluding that current accounting procedures are incapable of demonstrating what occurs with companies in this segment They state that one of the factors responsible for the weak performance of accounting numbers is the fact that American companies prepare their accounts according to US-GAAP, which do not allow companies to capitalize outlays on intangibles such as research and development (R&D). Faced with the claims presented, this study is focused on investigating listed Brazilian corporations, since Brazilian GAAP have a certain peculiarity in relation to booking intangibles In this fashion, the question investigated is: What relevance do accounting variables have in explaining the price behavior of the shares of Brazilian new-economy companies that are listed on stock exchanges?. We estimated regressions between 1995 and 2003, and used the R2 as a metric to evaluate the explanatory power of the variables, finding: (i) the explanatory power of earnings and net equity; and (ii) the incremental explanatory power of deferred charges, in which the stock price is a function of net earnings and equity minus deferred charges
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