Value Relevance of Financial and Non Financial Information in Emerging Industries: The Changing Role of Web Traffic Data

28 Pages Posted: 13 Mar 2001

See all articles by Philippe Jorion

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

Eli Talmor

London Business School

Date Written: November 2001

Abstract

The value relevance of financial and non-financial information is viewed in light of the theory of life-cycle stages. The study tests the evolving role of common financial statement and web traffic metrics for Internet companies. Previous work has reported that web usage measures are of high value relevance, or offer much greater explanatory power than conventional financial accounting information for market values. We do find that conventional financial data, including gross profit and realized growth rates in sales and in gross profit, are value relevant, but to a lower extent than web traffic data. As the industry matures, however, we would expect these relationships to change.

Indeed we find that gross profit and R&D become increasingly value relevant as indicated by time trends. Importantly, there is a clear negative time trend in the eyeball measures. Hence, although still of high importance, the value relevance of non-financial metrics has materially diminished over the 24 months testing period. Accounts for the change in market sentiment during the testing period does not change this finding. The results confirm the view that different value metrics should be used at different stages of the life of an industry. Testing whether the life-cycle theory is anchored more to the maturity of the industry or to that of the individual company, we find the value relevance of non-financial vis-a-vis financial measures to be tied only to the maturity of the sector as a whole.

Keywords: Internet valuation, web traffic, life-cycle

JEL Classification: G12, M41, L86

Suggested Citation

Jorion, Philippe and Talmor, Eli, Value Relevance of Financial and Non Financial Information in Emerging Industries: The Changing Role of Web Traffic Data (November 2001). Available at SSRN: https://ssrn.com/abstract=258869 or http://dx.doi.org/10.2139/ssrn.258869

Philippe Jorion

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)

Eli Talmor (Contact Author)

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom
+44 20 7000 7000 (Phone)

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