Internet downturn: Finding valuation factors in Spring 2000

Elizabeth K. Keating*, Thomas Z. Lys, Robert P. Magee

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

Abstract

During Spring 2000, the Internet Stock Index declined 45%. Using a sample of internet firms, this paper investigates whether this decline was associated with new disclosures, such as earnings, analyst forecast revisions, and web-traffic measures, or to a "reassessment" by investors of pre-existing information. We find only modest evidence that the decline was associated with new disclosures. However, returns and post-decline stock prices are significantly explained by 1999 annual report data. When earnings are decomposed into gross profit and various expenses, traditional financial information contributes significantly more in explaining the cross-sectional returns and price levels than non-financial information.

Original languageEnglish (US)
Pages (from-to)189-236
Number of pages48
JournalJournal of Accounting and Economics
Volume34
Issue number1-3
DOIs
StatePublished - Jan 2003

Funding

We thank PC Data Online for providing its web-traffic database and Zacks Investment Research for providing analyst earnings forecasts. We appreciate the research assistance of Patricia Ledesma, Yen Ming Lai and the SAS macros developed by Donald Cram. We acknowledge the helpful advice from the attendees of the 2001 JAE conference and seminar participants at the University of Illinois at Chicago and Kellogg School of Management at Northwestern University. In addition, we thank Amy Hutton, Jonathan Lewellan (the discussant and referee), Robert Lipe, Jeroen Suijs, Beverly Walther, Ross Watts (the editor) and Jerold Zimmerman for helpful suggestions. The financial support of Northwestern University's Accounting Research Center and Guthrie Center for Real Estate Research is gratefully acknowledged.

Keywords

  • Cash flow
  • Earnings
  • Internet firm
  • Stock option
  • Valuation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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