Earnings and Equity Valuation in the Biotech Industry: Theory and Evidence
"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." Copyright (c) 2008 Financial Management Association International..
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Volume (Year): 37 (2008)
Issue (Month): 3 (09)
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