Market Valuations in the New Economy: An Investigation of What Has Changed

44 Pages Posted: 18 Mar 2001

See all articles by John E. Core

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Wayne R. Guay

University of Pennsylvania - Accounting Department

Andrew Van Buskirk

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Multiple version iconThere are 2 versions of this paper

Date Written: June 2001

Abstract

The acceleration of globalization combined with rapid advances in technology and the growing importance of the Internet have led many researchers and practitioners to suggest that a "New Economy" has evolved in which equity valuation is different than in previous periods. We examine the explanatory power and stability of a regression model of equity value on traditional financial variables for a broad sample of firms over the past 25 years and investigate how equity valuation has changed in the recent New Economy sub-period. We also examine subsamples of high-technology firms, young firms, and young firms with losses that are thought to be emblematic of the New Economy. We find that the explanatory power of the regression model declined in recent years for all subsamples of firms. However, for all subsamples of firms, we find that the structure of the regression model is quite stable during the New Economy sub-period, as compared to other sub-periods. Together, these results suggest that traditional explanatory variables of equity value remain applicable to firms in the New Economy sub-period, but that there is greater variation remaining to be explained by uncorrelated omitted factors.

JEL Classification: G12, M41

Suggested Citation

Core, John E. and Guay, Wayne R. and Van Buskirk, Andrew, Market Valuations in the New Economy: An Investigation of What Has Changed (June 2001). JAE Boston Conference June 2001. Available at SSRN: https://ssrn.com/abstract=262619 or http://dx.doi.org/10.2139/ssrn.262619

John E. Core

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02138
United States

Wayne R. Guay (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
1329 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6365
United States
215-898-7775 (Phone)
215-573-2054 (Fax)

Andrew Van Buskirk

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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