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We empirically investigate valuations of Internet firms at various stages of the initial public offering (IPO) from two perspectives. First, we examine the association between the valuation of Internet IPOs and a set of financial and nonfinancial variables, which prior anecdotal or empirical evidence suggests may serve as value drivers. Second, we document differences in IPO valuations between Internet and non-Internet firms as well as across different stages in the IPO process—i.e., initial prospectus price, final offer price, and first trading day price—within each set of firms. Our primary two conclusions are as follows. First, there are noticeable differences between valuations of Internet and non-Internet firms, especially at the prospectus and final IPO stage. Specifically, the valuation of non-Internet firms generally follows the conventional wisdom regarding valuation: positive earnings and cash flows are priced, while negative earnings and negative cash flows are not. The valuation of Internet firms, however, departs from conventional wisdom, with earnings not being priced, and negative cash flows being priced perhaps because they are viewed as investments. This difference between the two classes of firms may be expected, given the age and unique nature of the Internet industry. Second, there are significant differences between the initial valuation of firms at the prospectus and IPO stage and their valuation by the stock market at the end of the first trading day. For non-Internet firms, the difference is largely ascribed to the relative offering size. For Internet firms, however, the differences are with respect to positive cash flows, sales growth, R&D, and high-risk warnings, in addition to the relative offering size. [ABSTRACT FROM AUTHOR]

Consistent with previous research, we fail to find a significant correlation between the abnormal returns of our sample firms with international activities and changes in the dollar. We investigate the possibility that this failure is due to mispricing. Lagged changes in the dollar are a significant variable in explaining current abnormal returns of our sample firms, suggesting that mispricing does occur. A simple trading strategy based upon these results generates significant abnormal returns. Corroborating evidence from returns around earnings announcements as well as errors in analysts' forecasts of earnings is also provided. [ABSTRACT FROM AUTHOR]

We document negative stock returns and elevated trading volumes around executives' early option exercise disclosures post- SOX, but not pre- SOX. This stock price reaction is incomplete, and the negative stock price drift is smaller post- SOX compared to pre- SOX. We also show effects of media coverage in the stock price response to exercise disclosures in the post- SOX period. These findings provide evidence that the requirement mandated by SOX to disclose executives' stock option exercises within two business days, and the increased media coverage, improves investors' ability to incorporate into stock prices in a timely fashion the information conveyed by these exercises. [ABSTRACT FROM AUTHOR]

We investigate which variable, earnings or cash flows, provides greater information for equity valuation within the United States, the United Kingdom, Canada, Germany, and Japan. We regress returns on earnings and cash flow metrics. We generally find earnings developed in three Anglo-Saxon countries-where capital is traditionally raised in public markets and reporting rules are unencumbered by taxation requirements-to have greater explanatory power for stock returns than cash flow metrics. Conversely, in two non-Anglo-Saxon countries-where capital is traditionally raised from private sources-earnings are generally not superior to cash flows for equity valuation, except in Japan, non-consolidated sample. While sensitivity analyses generally support the conclusions of our primary tests, in some of the additional analyses, earnings were superior to cash flows for samples from all countries. As expected, in all countries earnings have incremental information content over cash flows in explaining returns. Collectively, our findings provide two contributions. First, we generalize the findings of prior US research by showing that earnings are more important than cash flows for equity valuation in other Anglo-Saxon countries. Second and more importantly, our findings demonstrate that the superiority of earnings over cash flows is not universal. Rather, it depends on the national reporting regime and attendant institutional factors. [ABSTRACT FROM AUTHOR]

This study further explores a structural break in the relation between stock returns of firms with foreign currency positions and lagged exchange rate changes (exchange rate exposure effect) documented in Bartov and Bodnar (1994). We examine whether changes in the financial accounting reporting of foreign currency positions from SFAS No. 52 might have improved investors' ability to characterize firms' economic exchange rate exposures, and thus the impact of exchange rate movements on firm value. Our findings indicate that only firms reporting using the dollar as the functional currency (i.e., those reporting as if they were still under SFAS No. 8) retain a significant relation between the lagged change in the dollar and firm value in the post-SFAS No. 52 period. For firms reporting using the foreign currency as the functional currency (i.e., those who switched to the new translation method) the significant lagged relation disappears. This is consistent with the use of a foreign currency as the functional currency under SFAS No. 52 facilitating valuation of U.S. firms with foreign operations. [ABSTRACT FROM AUTHOR]