Do investors attach higher valuation weights to cash flow-based measures than to accrual-based measures in valuing intangible-intensive, high-technology stocks

This study provides empirical evidence on the impact of high-tech firms' unrecognized intangible investments on the market valuation of cash flow and accrual amounts. In particular, this study empirically examines the different valuation weights that capital market participants attach to accrual-based versus cash flow-based measures when valuing intangible-intensive, high-technology stocks, and finds that investors appear to value, on average, a dollar of cash flows higher than a dollar of accruals for intangible-intensive high-technology firms. Based on samples of Compustat high- and low-technology firms between 1992–2001, the empirical results suggest that cash flows have larger multiplier than aggregate accruals, and have incremental value-relevant information beyond that contained in the individual components of accruals for valuing high-technology stocks.; This study further provides evidence that suggests that cash earnings measures of low-technology firms are dominated by those of high-technology firms as a summary indicator of share values. This study contributes to existing literature that reports no substantial difference in the value relevance of cash flow and accrual amounts in high and low tech industries. It provides evidence that suggests that capital market investors do not hold high-tech stocks to the same standards of valuation that they use for low-tech traditional stocks.