R&D, Advertising and the Market Value of Internet Firms: Part II

This study attempts to explain the valuation of Internet firms during the valuation "bubble" period from 1996 to 2000. Consistent with predictions of the investment opportunities approach, the results show positive and statistically significant relations between the market value of Internet firms and investments in R&D and advertising in each year of the sample period. The results also suggest that investors valued Internet firms mostly based on the level of their intangible investments and ignored the value of earnings. The lesson learned during the dot com valuation bubble is that the value of a growth firm is a function of a firm's ability to create consistent positive earnings in addition to the value of potential growth opportunities. (C) 2005 by The Haworth Press, Inc. All rights reserved.