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The interpretative ability of coefficient R2 to calculate the firm value

Author

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  • Chara Theodoraki

    (Department of Business Administration, University of Patras)

Abstract

Several studies have focused on the relationship between the R2 and the firm value. They have tried to explain how different values of R2 affect the firm value. In this paper we examine this relationship for the Greek companies listed on the Greek Stock Exchange, analyzing a sample of 135 listed companies for the 2004-2010 period. The results reveal that R2 is inversely related to the firm value. This is consistent with the model of Dow and Gorton (1997). Moreover, we found that companies with high R2 have significantly higher returns than those with low R2, over a two year period time, which is inconsistent with the findings of Stowe and Xing (2011). Moreover, this research shows that the investment decisions are likely to be based more on investor psychology rather than an analysis of firm-specific information.

Suggested Citation

  • Chara Theodoraki, 2014. "The interpretative ability of coefficient R2 to calculate the firm value," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 64(1), pages 29-41, January-M.
    • Handle: RePEc:spd:journl:v:64:y:2014:i:1:p:29-41
    as

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    References listed on IDEAS

    as
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    4. John D. Stowe & Xuejing Xing, 2011. "R^2: Does it Matter for Firm Valuation?," The Financial Review, Eastern Finance Association, vol. 46(2), pages 233-250, May.
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    6. Qi Chen & Itay Goldstein & Wei Jiang, 2007. "Price Informativeness and Investment Sensitivity to Stock Price," The Review of Financial Studies, Society for Financial Studies, vol. 20(3), pages 619-650.
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    More about this item

    Keywords

    R2; firm value; Tobin’s Q; long run performance.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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