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JOURNAL OF ACCOUNTING AND FINANCE

Information Decay and Firm Valuation – Evidence from

Taiwan’s Biotech Industry

Author(s): Xiaoli Wang, Angela Hsiang-Ling Chen, Jason Zu-Hsu Lee

Citation: Xiaoli Wang, Angela Hsiang-Ling Chen, Jason Zu-Hsu Lee, (2013) "Information Decay and Firm Valuation – Evidence from Taiwan’s Biotech Industry," Journal of Accounting and Finance, Vol. 13, Iss. 5, pp. 153 - 163

Article Type: Research paper

Publisher: North American Business Press

Abstract:

We investigate the capabilities of predicting firm value over different time horizons based on the data

from Taiwan’s biotech industry. The variables of ROA, ROE, operating profit margin, net income ratio,

Tobin’s Q and stock price are used to measure firm value. These variables are either being predicted

separately or together as a whole, and prediction accuracy is tested across different predictor variable

time lags. A 2-quarter lag appears to result in a better prediction for ROE, stock price and net income

ratio, and a 1-quarter lag for ROA, regardless of whether a single variable is being predicted or several

combined. Using very recent information does not necessarily lead to effective firm valuation as

information decay may not be an immediate effect. This implies cost savings from keeping various

financial and non-financial factors up-to-date which may be tedious and time consuming.