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The Value Relevance of Revenue for Internet Firms: Does Reporting Grossed‐up or Barter Revenue Make a Difference?

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  • Angela K. Davis

Abstract

This study provides evidence on (a) the market’s response to revenue and revenue announcements, (b) the extent of the use of grossed‐up and barter revenue by Internet firms, and (c) whether the value relevance of revenue differs when Internet firms report grossed‐up or barter revenue. Results indicate that revenue announcements are highly associated with three‐day market returns and provide information incremental to that contained in earnings announcements. The use of grossed‐up and barter revenue is common for certain sectors of Internet firms, but not pervasive across sectors. Evidence suggests that the value relevance of revenue for firms reporting grossed‐up and barter revenue declined subsequent to the “crash” in April 2000. Additional analyses explore the effect of active individual investors on the pricing of revenue for firms reporting grossed‐up and barter revenue. Findings suggest higher pricing of revenue for firms reporting grossed‐up or barter revenue with relatively greater individual investor following.

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  • Angela K. Davis, 2002. "The Value Relevance of Revenue for Internet Firms: Does Reporting Grossed‐up or Barter Revenue Make a Difference?," Journal of Accounting Research, Wiley Blackwell, vol. 40(2), pages 445-477, May.
    • Handle: RePEc:bla:joares:v:40:y:2002:i:2:p:445-477
    DOI: 10.1111/1475-679X.00056
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    Cited by:

    1. Christopher S Armstrong & Antonio Davila & George Foster & John RM Hand, 2011. "Market-to-revenue multiples in public and private capital markets," Australian Journal of Management, Australian School of Business, vol. 36(1), pages 15-57, April.
    2. Taylor Randall & Serguei Netessine & Nils Rudi, 2006. "An Empirical Examination of the Decision to Invest in Fulfillment Capabilities: A Study of Internet Retailers," Management Science, INFORMS, vol. 52(4), pages 567-580, April.
    3. Fabio Bertoni & Massimo Colombo & Luca Grilli, 2013. "Venture capital investor type and the growth mode of new technology-based firms," Small Business Economics, Springer, vol. 40(3), pages 527-552, April.
    4. Alina Lerman, 2020. "Individual Investors' Attention to Accounting Information: Evidence from Online Financial Communities," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2020-2057, December.
    5. Estelle Y. Sun, 2021. "The Differential Role of R&D and SG&A for Earnings Management and Stock Price Manipulation," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 242-275, March.
    6. Andrew Hertzberg, 2018. "A Theory of Disclosure in Speculative Markets," Management Science, INFORMS, vol. 64(12), pages 5787-5806, December.
    7. C Serrano-Cinca & Y Fuertes-Callén & C Mar-Molinero, 2010. "A structural model for sales in the e-retailing industry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(9), pages 1377-1388, September.
    8. Itay Kama, 2009. "On the Market Reaction to Revenue and Earnings Surprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1‐2), pages 31-50, January.
    9. Nilabhra Bhattacharya & Elizabeth Demers & Philip Joos, 2010. "The Relevance of Accounting Information in a Stock Market Bubble: Evidence from Internet IPOs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3‐4), pages 291-321, April.
    10. Nagar, Neerav & Desai, Naman & Jacob, Joshy, 2021. "Do Big 4 auditors limit classification shifting? Evidence from India," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    11. Henk Berkman & Cameron Truong, 2009. "Event Day 0? After‐Hours Earnings Announcements," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 71-103, March.
    12. Nilabhra Bhattacharya & Elizabeth Demers & Philip Joos, 2010. "The Relevance of Accounting Information in a Stock Market Bubble: Evidence from Internet IPOs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3-4), pages 291-321.
    13. Vinay Goyal & Subrata K. Mitra, 2022. "Is the asymmetric impact of aggregate revenue and aggregate earnings on the stock index in accordance with the prospect theory?," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 200-222, March.
    14. Malikov, Kamran & Manson, Stuart & Coakley, Jerry, 2018. "Earnings management using classification shifting of revenues," The British Accounting Review, Elsevier, vol. 50(3), pages 291-305.
    15. Poonawala, Sakina H. & Nagar, Neerav, 2019. "Gross profit manipulation through classification shifting," Journal of Business Research, Elsevier, vol. 94(C), pages 81-88.
    16. Al-Rawashdeh, Firas, 2017. "Applying Benford's law into Jordanian insurance companies to identify earning's manipulations," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 13(2).
    17. Bansal, Manish & Kumar, Ashish & Bhattacharyya, Asit & Bashir, Hajam Abid, 2023. "Predictors of revenue shifting and expense shifting: Evidence from an emerging economy," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(1).
    18. Itay Kama, 2009. "On the Market Reaction to Revenue and Earnings Surprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1-2), pages 31-50.
    19. Sylvia H. Hsu & Johnny Jiungyee Lee, 2012. "Timing of Sale, Pricing, and Cost Information: Evidence from the Airline Industry," Accounting Perspectives, John Wiley & Sons, vol. 11(3), pages 197-209, September.
    20. Armstrong, Chris & Davila, Toni & Foster, George & Hand, John R.M., 2005. "U.S. public and private venture capital markets, 1998-2001: A fundamental information analysis," IESE Research Papers D/599, IESE Business School.
    21. Susan M. Albring & María T. Cabán‐García & Jacqueline L. Reck, 2010. "The value relevance of a non‐GAAP performance metric to the capital markets," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 9(3), pages 264-284, August.
    22. Hemang Subramanian & Sabyasachi Mitra & Sam Ransbotham, 2021. "Capturing Value in Platform Business Models That Rely on User-Generated Content," Organization Science, INFORMS, vol. 32(3), pages 804-823, May.
    23. Tatiana Fedyk & Zvi Singer & Mark Soliman, 2017. "The sharpest tool in the shed: IPO financial statement management of STEM vs. non-STEM firms," Review of Accounting Studies, Springer, vol. 22(4), pages 1541-1581, December.

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