The Valuation of Loss Firms: A Stock Market Perspective

37 Pages Posted: 17 Oct 2022 Last revised: 6 Feb 2023

See all articles by Hannes Mohrschladt

Hannes Mohrschladt

University of Muenster - Finance Center

Susanne Siedhoff

University of Muenster - Finance Center

Date Written: August 4, 2022

Abstract

The proportion of exchange-listed firms with negative earnings has increased to over 40% in recent years. Given that the fundamental value of these loss firms is difficult to determine, we expect particularly strong value effects among these firms. We find that the return predictability associated with book-to-market and revenue-to-price is indeed significantly stronger compared to gain firms. Our further analyses on financial analysts, earnings announcement returns, short selling activities, option trading, and limits to arbitrage support a behavioral mechanism for our main finding.

Keywords: Loss Firms, Firm Valuation, Value Effect, Stock Mispricing

JEL Classification: G02, G12, G14, M41

Suggested Citation

Mohrschladt, Hannes and Siedhoff, Susanne, The Valuation of Loss Firms: A Stock Market Perspective (August 4, 2022). Available at SSRN: https://ssrn.com/abstract=4239613 or http://dx.doi.org/10.2139/ssrn.4239613

Hannes Mohrschladt (Contact Author)

University of Muenster - Finance Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/fcm/en/the-fcm/lsf/team/hannes-mohrschladt

Susanne Siedhoff

University of Muenster - Finance Center ( email )

Universitätsstraße 14-16
Muenster, DE 48143
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
199
Abstract Views
543
Rank
244,672
PlumX Metrics