Value-Relevance of Financial and Non-Financial Information for the Publicly Traded Internet-Based Companies in the Post-Sarbanes-Oxley Period

Abstract

This research is a value-relevance research and constitutes a part of the Market-based Accounting Research (MBAR).It examines the relationship between the market value of Internet-based companies from the NASDAQ QNET index and different financial and non-financial value-drivers.The period examined is from Q1 2009 to Q2 2010. Financial components considered are book value, profit, operating cash flow, R&D and SG&A expenses as well as earnings before interest, taxes, depreciation/amortization (EBIT). The non-financial item used is Alexa rank which is a composite Internet metric based on web traffic, page views and other popular non-financial metrics examined in the previous research. The Ordinary Least Square (OLS) regression analysis is used to examine these relationships. The book value of equity and R&D expense are found to be value-relevant in line with the previous research done in 1999-2002. SG&A expense is not found to be value-relevant in this study. The quality of data sets and transformations for the cash flow, profit and EBIT variables precluded coming to any definite conclusions regarding their value-relevance. The internet metric, Alexa rank, is not found to be value-relevant but the small sample size for this particular test as well as the short time period considered could be the reasons. Originally three hypotheses were proposed however it became possible to expand the models to include two additional hypotheses. This ensured a more extensive value-relevance analysis for different components of financial statements.