The usefulness of accounting and non -financial information in explaining revenues and valuations for Internet firms

This dissertation examines the usefulness of accounting and non-financial information in the analysis of internet firms. It provides additional structure on the analysis of these firms in two main ways. The first chapter is devoted to the specification of business models and the separate valuation of each firm type. The second chapter focuses on linkages between website activity measures and firm revenues.;The first chapter distinguishes seven business models employed by internet firms and suggests potential value-drivers for each. Whereas prior literature has found earnings to be unpriced (or negatively priced) for internet firms in general, ISP/infrastructure and portal-based firms are shown to have positive and significantly priced earnings. This chapter develops a conceptual framework that motivates the collection of a more comprehensive set of non-financial value drivers. In empirical tests, several of these (e.g., the size of the internet audience reached and the number of advertisements seen) are significantly related to firm valuations. Finally, it constructs a larger sample of firms and examines changes in the pricing of financial and non-financial variables during boom (through February 2000) and bust (since) periods in the market for internet stocks. Results indicate that, since the crash, earnings for the full sample and most business models are positively priced. Furthermore, reach and other activity measures continue to have explanatory power despite the increasing value-relevance of earnings.;The second chapter examines the financial and non-financial determinants of firm revenue, while addressing the endogenous and multicollinear nature of these measures. Specifically, a path diagram specifies causal relationships from expenditures on SG&A and R&D through activity generation to revenue creation. Results from this analysis suggest that both SG&A and R&D have explanatory power over the other variables, consistent with these expenditures representing investments in website quality. Evidence also indicates that both accounting and non-financial measures, in particular SG&A and pageviews, are significantly associated with firm revenues.