The Relationship between the Characteristics of Price below Book Value and Price below Face Value and Changes in the Future Accounting Profitability: Evidence from Taiwan Markets
Date Issued
2016
Date
2016
Author(s)
Chen, Sen-You
Abstract
This paper examines the effect of the characteristics of price below book value, price below face value and price below both book value and face value on changes in the future accounting profitability of Taiwanese listed firms from 1994 to 2011. The results show that the characteristics of price below book value and price below face value are positively associated with changes in the future accounting profitability. Although the results show that the characteristic of price below both book value and face value is negatively associated with changes in the future accounting profitability, the overall effect of this characteristic is positive. This study also examines the effect of the size factor on changes in the future accounting profitability. The results show that the size factor is negatively associated with changes in the future accounting profitability consistent with prior research, but this study doesn’t prove that the interactions of the size factor and these characteristics have the incremental effect on changes in the future accounting profitability. This study indicates that the characteristics of prices below book value, prices below face value and prices below both book value and face value are good indicators for investor to form a value stock portfolio. This study also can persuade investors not to make excessively pessimistic expectation about these companies’ future accounting profitability and promote government departments concerned to take action to keep stock markets to work efficiently.
Subjects
Price below Book Value
Price below Face Value
Price below Both Book Value and Face Value
Changes in the Future Profitability
Type
thesis