Tech Stock Valuation

REFERENCES 203

limitation of prior results is that cross-sectional valuation effects of accounting

goodwill numbers have the potential to reflect, at least in part, similarly positive

valuation effects of advertising and R&D expenditures, among other such influ-

ences. It is now well known that both advertising and R&D give rise to “intangi-

ble assets” with favorable effects on long-term profitability and the market-value

of the firm (see Hirschey Weygandt, 1985).

This study reports on a simple test of the economic relevance of accounting

goodwill numbers within an event-study framework that is not apt to be influenced

by the valuation effects of advertising, ...