Tech Stock Valuation (eBook)

Cover 1
Copyright Page 5
CONTENTS 8
ACKNOWLEDGMENTS 14
PREFACE 16
Chapter 1. The Tech Bubble 20
I. The Nifty 50 21
II. NASDAQ 100 as the New Nifty 50 24
III. As Technology Goes, So Goes the NASDAQ 100 34
IV. How High is Up? 40
V. Conclusion 44
VI. References 45
Chapter 2. What Caused the Tech Bubble? 48
I. Efficient Market Hypothesis 49
II. The Time Series of Stock Prices 50
III. Daily Returns 51
IV. Random Walk Concept 54
V. Random Walk Research 56
VI. Stock Market Bubbles 57
VII. Stockholders and the Agency Problem 58
VIII. Risk Management Problems 59
IX. Investment Horizon Problems 60
X. Accounting Information Problems 62
XI. Stock Fraud 63
XII. Fraud on the Internet 65
XIII. Conclusion 67
XIV. References 68
Chapter 3. Investment Advice on the Internet 70
I. Buy–Sell Recommendation Research 71
II. Investment Information on the Internet 73
III. The Motley Fool (TMF) 76
IV. TMF’s Rule Breaker Portfolio 77
V. Other TMF Portfolios 80
VI. Methodology 84
VII. All Portfolio Returns 87
VIII. Individual Portfolio Returns 91
IX. Conclusion 97
X. References 98
Chapter 4. A Dissertation on Tulips and America Online 100
I. How Much is a Tulip Worth? 101
II. The Tulip Mania 102
III. Estimating 17th Century Tulip Prices 103
IV. Psychology of Manias 106
V. The Late-1990s Internet Stock Mania 107
VI. AOL as a Growth Stock 109
VII. AOL Risk Assessment 113
VIII. AOL Growth Expectations 113
IX. AOL Valuation as a Growth Stock 114
X. AOL as a Value Stock 115
XI. AOL Customer Value 116
XII. Private–Market Value 117
XIII. Value of AOL–Time Warner 117
XIV. Conclusion 119
XV. References 120
Chapter 5. The Crash of 2000–2002 and Imminent Rebound 122
I. Mean Reversion in Business Profits 123
II. Business Cycles vs. Market Cycles 124
III. Return Reversal in the S& P 500 and the NASDAQ
IV. Nonoverlapping Period Analysis 131
V. Return Reversal or Simply Regression to the Mean? 133
VI. Overreaction Hypothesis 135
VII. What About the Japanese Experience? 137
VIII. Conclusion 142
IX. References 143
Chapter 6. Stock–Price Effects of Research and Development Expenditures 144
I. R& D as a Source of Intangible Capital
II. Corporate Governance, R& D, and R&
III. R& D Spending by Industry Group
IV. Corporate leaders in R& D Spending
V. Measuring R& D Capital Using Tobin’s q Ratio
VI. The Sample 160
VII. Effects of R& D on Tobin’s q
VIII. Firm Size Effects 168
IX. Institutional Ownership and R& D Effectiveness
X. Conclusion 172
XI. References 174
Chapter 7. Valuation Effects of Patent Quality 176
I. Usefulnesness of Nonfinancial Information 177
II. Questions about Long-Term Benefits of R& D
III. Patent Statistics 180
IV. Patent Citations 181
V. Scientific Merit of Patents 182
VI. Data 184
VII. Methodology 188
VIII. Stock–Price Effects of Patent Quality: U.S. Companies 189
IX. U.S. Companies: Effects of Size and Growth Opportunities 191
X. Patent Quality in Japan Versus the United States 195
XI. Valuation Effects of Patent Quality for Japanese Companies 197
XII. Conclusion 198
XIII. References 199
Chapter 8. Goodwill Write-Off Decisions: Do They Matter? 202
I. Goodwill 203
II. New Goodwill Accounting Standards 204
III. Goodwill Write-Off Decisions 206
IV. Sample 208
V. Estimation Method 211
VI. Announcement Period Effects 213
VII. Announcement Effects and Contemporaneous Announcements 215
VIII. Announcement Effects by Industry Group 216
IX. Preannouncement and Postannouncement Period Effects 217
X. Conclusion 220
XI. References 222
Chapter 9. Shark Repellents and Research and Development: Does Management Have a Long-Run Perspective? 224
I. Shark Repellents 225
II. Data 227
III. Long-Term Performance and Financial Policies 228
IV. Measures of Long-Term Performance and Financial Policies 229
V. Nonparametric Tests of Relative Performance 231
VI. Nonparametric Results for Industry-Adjusted Performance 233
VII. Measures of Firm Financial Policy 237
VIII. Nonparametric Results for Industry-Adjusted Financial Policy 239
IX. Regression Model Specification 242
X. Regression Results for Changes in Firm Performance 243
XI. Regression Results for Changes in Financial Policy Decisions 243
XII. Conclusion 244
XIII. References 246
Chapter 10. Corporate Governance and the Legal Environment 248
I. Role Played by Boards of Directors 249
II. Corporate Governance Mechanisms Inside the Firm 252
III. Franchise Agreements 254
IV. Strategic Alliances 255
V. Ownership Structure as a Corporate Governance Mechanism 256
VI. Is Ownership Structure Endogenous? 260
VII. Federal Law Enforcement Actions as Tools for Corporate Governance 261
VIII. Administration of Federal Laws and Regulations 263
IX. Valuation Effects of Enforcement Actions 264
X. Previous Studies 265
XI. Data 266
XII. Estimation Method 268
XIII. Announcement Effects by Type of Enforcement Activity 270
XIV. Announcement Effects by Violation Category 273
XV. Announcement Effects by Industrial Classification 276
XVI. Conclusion 280
XVII. References 282
INDEX 284