Value-Relevance of Nonfinancial Information: The Wireless Communications Industry
Posted: 19 Jun 1995
The study examines the value-relevance of reported financial information of fast-changing science-based companies and the incremental value-relevance of publicly available nonfinancial information. Based on a sample of independent cellular phone companies we find that on a stand-alone basis financial information (earnings book values and cash flows) appears largely irrelevant for valuation. However when combined with nonfinancial information these variables contribute to the explanation of stock prices and returns. Also the value- relevance of nonfinancial information overwhelms that of traditional financial indicators. Finally regarding investors' timely recognition of the implications of nonfinancial information we find that a key cellular nonfinancial growth measure -- POPS -- is positively associated with subsequent stock returns after controlling for various risk and growth measures. This may indicate either a systematic investor underreaction to nonfinancial information (market inefficiency) or that this nonfinancial measure proxies for risk.
JEL Classification: G12, M41
Suggested Citation: Suggested Citation