Abstract
Using the fourth-round database of the Business Environment and Enterprise Performance Survey (2008/09 BEEPS), this study examines the determinants of discouragement in less developed countries in Eastern Europe and Central Asia. The results show that whereas firms' opaqueness, demographic factors, and distance between lenders and borrowers better explain the discouragement due to tough loan prices and/or loan application procedures, firm risk and banking concentration explain the incidence of discouraged borrowers due to the fear of rationing. Innovator status, the legal protection of creditors and lenders in the event of default, and the coverage of information sharing instruments help explain discouragement in a transversal way.
Highlights
It is generally accepted that the stock market value firms reflects the value of its net assets
We are able to conclude that: i) investors look beyond aggregate earnings, ii) that investors value certain components of losses (R&D and Advertising expenditures) positively, iii) capital markets seem to give strong value to firms undertaking such investments, iv) and that the presence of growing research and development (R&D) and Advertising expenditures, implies that the persistence of losses may have become a weaker indicator of likelihood of liquidation, v) when faced financial distressed, the mergers an acquisitions is the main strategy to exercise the growth option and maximize the value of the firm and vi) analyse loss firms homogenous can lead incorrect specifications
Unlike previous findings we show that earnings have a divergent influence on market value of profit and loss making firms due the collision of large expenditures in R&D and Advertising that are subject to the conservatism accounting practice
Summary
It is generally accepted that the stock market value firms reflects the value of its net assets. These results are consistent with the model proposed by Noe and Park (2000), which suggest that high-tech firms invest heavily in intangible assets in order to generate valuable growth options in the future (in our samples the majority of the firms are classified in high-tech sectors).
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