Abstract

In this thesis, we investigate the value relevance of non-financial performance information, within the context of the biotechnology industry. We also investigate the interactions between financial information and non-financial performance information. We develop six hypotheses that are specific to the biotechnology industry: H1: Financial information, after controlling for its sign, is value relevant. H2: A firm's product market status enhances the value relevance of financial information Reported by biotechnology firms. H3: Information about R&D expenditures (R&D inputs) has incremental value relevance over financial information. H4: Clinical trial information about a firm's drug portfolios (R&D outputs) has incremental value relevance over financial and R&D input information. H5: The incremental value relevance of information on a firm's drug portfolios is greater for drugs at more advanced stages than for drugs at earlier stages. H6: Information about a firm's business relations has incremental value relevance over its financial and R&D innovation information. We test these hypotheses using data of biotechnology firms collected from 1998 to 2001. Our findings indicate that, in the biotechnology industry, (1) financial information, after the control for its sign, is value relevant; (2) a firm's product market status can help investors better understand the value relevance of financial information, especially earnings; (3) R&D intensity (proxy for R&D inputs) is incrementally value relevant over financial information; (4) drug portfolios (proxies for R&D outputs) are incrementally value relevant over financial information and R&D intensity; (5) the incremental value relevance of drug portfolios is greater for drugs at more advanced stages than for drugs at earlier stages; (6) Alliances (a proxy for business relations) are incrementally value relevant over financial information, R&D intensity and drug portfolios. With respect to the interactions between financial information and non-financial performance information, we find that financial information can enhance the value relevance of non-financial performance information, while non-financial performance information, in turn, can enhance the value relevance of financial information. Based on these interactions, we suggest an interactive perspective for the evaluation and exploration of the value relevance of the two types of information. In addition, we propose a more reliable measurement of R&D innovation. (Abstract shortened by UMI.)