Abstract
We examine how the price-earnings relation varies with the uncertainty about and the quality of a firm's investments. We develop a real option valuation framework to capture investment and abandonment options in the research-intensive biotechnology industry. We hypothesize that the price-earnings relation will be V-shaped and change over the firm's life cycle. We also show how nonfinancial information affects the pricing of earnings. Our empirical findings are based on a sample of 301 biotechnology firms that made IPOs between 1980 and 2000, and are generally consistent with our predictions.
Original language | English (US) |
---|---|
Pages (from-to) | 431-460 |
Number of pages | 30 |
Journal | Financial Management |
Volume | 37 |
Issue number | 3 |
DOIs | |
State | Published - 2008 |
All Science Journal Classification (ASJC) codes
- Accounting
- Finance
- Economics and Econometrics