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The Valuation Implications of Sales Growth in Start-up Ventures

Author

Listed:
  • Ilanit Gavious

    (Ben-Gurion University)

  • Dafna Schwartz

    (Ben-Gurion University)

Abstract

We examine whether and how investors' reliance on financial information is affected by the rate of sales growth of a start-up venture. We find that investors discern between firms by the extent to which their products are adopted by the market. For firms that failed to increased their sales since IPO, investors preceive financial data as not providing relevant or predictive information for investment decision making. In contrast, investors seem to rely heavily on financial information provided by firms presenting a continuous increase in sales. We suggest that investors may perceive firms with a continuous increase (decrease) in sales as those that are (un)able to transfer through the technology adoption lifecycle and make the transition from an early market dominated by a few visionary customers to a mainstream market. Whereas prior studies relate changes in the value-relevance of financial statements to a firm's maturity, as measured on the basis of time (firm age), our findings indicate that the main factor affecting value-relevance is a firm's degree of market penetration.

Suggested Citation

  • Ilanit Gavious & Dafna Schwartz, 2009. "The Valuation Implications of Sales Growth in Start-up Ventures," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 13(2), pages 1-24, Fall.
    • Handle: RePEc:pep:journl:v:13:y:2009:i:2:p:1-24
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    References listed on IDEAS

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    Cited by:

    1. Ester Chen & Ilanit Gavious & Baruch Lev, 2017. "The positive externalities of IFRS R&D capitalization: enhanced voluntary disclosure," Review of Accounting Studies, Springer, vol. 22(2), pages 677-714, June.

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    More about this item

    Keywords

    financial statements; market penetration; start-up; sales growth; technology adoption; value-relevance; valuation implications; venture capital;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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