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Going negative : what to do with negative book equity stocks

Brown, Stephen, Lajbcygier, Paul and Li, Bob 2008, Going negative : what to do with negative book equity stocks, Journal of portfolio management, vol. 35, no. 1, Fall, pp. 95-102, doi: 10.3905/JPM.2008.35.1.95.

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Title Going negative : what to do with negative book equity stocks
Author(s) Brown, Stephen
Lajbcygier, Paul
Li, Bob
Journal name Journal of portfolio management
Volume number 35
Issue number 1
Season Fall
Start page 95
End page 102
Total pages 8
Publisher Institutional Investor, Journals
Place of publication New York, N.Y.
Publication date 2008
ISSN 0095-4918
Summary A firm's book equity is a measure of the value held by a firm's ordinary shareholders. Increasingly, it is being reported as a negative number. Because a firm's limited liability structure means that shareholders cannot have negative value, negative book equity has no obvious interpretation. Consequently, both practitioners and academics typically omit such stocks in their analysis .While these stocks are small in number, they are disproportionately represented in extreme growth-value sectors and, therefore, can have an impact on applications where value is defined in terms of book equity. The authors propose a new approach that classifies negative book equity stocks across the growth-value spectrum by considering how close their returns correspond to those of stocks that fit more obviously into these classifications .They find that this new value factor, which includes negative book equity stock, is economically and statistically different from the old value factor that excludes such stocks. Although they illustrate how this approach can be used to classify negative book equity stock, the approach is quite general and may be used whenever particular accounting data are unavailable or otherwise suspect.
Language eng
DOI 10.3905/JPM.2008.35.1.95
Field of Research 150103 Financial Accounting
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2008, Euromoney Institutional Investor PLC
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Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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