Before and after 2000: revenue and high tech valuation

Purpose – This paper aims to examine the concerns that high‐tech “new economy” companies employ aggressive revenue recognition practices to boost stock prices. Design/methodology/approach – The authors test empirically the hypothesis that revenue is more value relevant than other key performance measures traditional earnings and operating cash flows, especially in the case of high‐tech firms with losses. Findings – Test results from this study demonstrate the association between stock prices and reported revenues, both before and after year 2000 the stock market meltdown. Research limitations/implications – The study limits its scope on the high‐tech new economy sector. The findings may not be applicable to other industries. Practical implications – An important implication of the findings is that the association between stock prices and revenue is presumably the underlying reason for aggressive revenue recognition. Originality/value – This paper provides empirical evidence demonstrating the association between stock prices and revenues, which is very valuable to policy makers and market participants.