Characteristics and Performance of Negative P/E firms and Positive P/E firms: Evidences from selected countries
Sazali Abidin, Dr., Department of Finance, Waikato Management School, University of Waikato, Private Bag 3105, Hamilton 3240, New Zealand
Tel: +(647) 838-4513, E-mail: [email protected]
Nirosha Wellalage, Dr., Department of Finance, Waikato Management School, University of Waikato, Private Bag 3105, Hamilton 3240, New Zealand
Tel: +(647) 838-4196, E-mail: [email protected] Youjie Ye, Department of Finance, Waikato Management School, University of Waikato, Private Bag 3105, Hamilton 3240, New Zealand
Tel: +(647) 838-4448, E-mail: [email protected] Zhixia Zhao, Department of Finance, Waikato Management School, University of Waikato, Private Bag 3105, Hamilton 3240, New Zealand
Tel: +(647) 838-4448, E-mail: [email protected] Abstract
Using data of four Asian countries, China, Japan, South Korea and Singapore for the period 2004-2014, with 29,939 observations (6,456 unique companies), this paper aims to answer two key questions,that 1) whether performance of negative P/E ratio firms are significantly different from positive P/E firms, 2) what characteristics are significantly different between firms with negative P/E ratio and positive P/E ratio. Both Mood Median test and Kolmogorov–Smirnov (K-S) test are used in this paper to examine the significance of results.
Through empirical research, this paper finds that the performance between negative P/E ratio firms and positive P/E ratio firms was significantly different, especially in terms of EBIT margin, current ratio, cash, assets turnover, EPS growth, EBIT growth, rev growth, market cap, and return of stock. Such results are partly consistent with previous studies and makes contributions on finding new characteristics between firms with positive P/E ratio and negative P/E ratio.
JEL Classification - G15 - International Financial Markets
Keywords: Price Earnings ratio, performance, investment, fund management
1.0 Introduction
P/E Ratio is a widely used valuation ratio for investment analysis in financial market.
Academic research has focused on examining the performance of firms with different levels of P/E stocks, but there is little research with regards to the performance of negative P/E firms, and how this performance compares with the most widely examined positive multiples firms.
Besides, negative P/E ratios are usually showed as “N/A” in report. However, the negative figure of P/E ratio cannot be ignored, as it may contains much information, or problems of a company. Therefore, this paper will pay attention to the firms with negative P/E ratio and plans to answer two key questions that 1) whether performance of negative P/E ratio firms are significantly different from positive P/E firms, 2) what characteristics are significantly different between firms with negative P/E ratio and positive P/E ratio.
This paper focuses on four Asian countries: China, Japan, South Korea and Singapore. Those four countries are playing or had played important role in the world economy, and have strong connections between each other. The data in this paper will cover 29,939 of the observations (6,456 unique companies) with 29,081 positive P/E ratio observations and 858 negative P/E ratio observations during the period 2004-2014. To evaluate the significance, this paper will use both Mood Median test and Kolmogorov–Smirnov (K-S) test. The results of this paper shows that the performance between negative P/E ratio firms and positive P/E ratio firms was significantly different, especially in terms of EBIT margin, current ratio, cash, assets turnover, EPS growth, EBIT growth, rev growth, market cap, and return of stock.
The rest of the paper is structured as follows: Section 2 provides literature review in three aspects: price-earnings ratio, relationship between firm performance and P/E ratio, and P/E ratio analysis in China, Japan, South Korea, as well as Singapore. Section 3 discusses the data sources, sample selection and methodology. Section 4 reports empirical results and gives discussions of findings. Section 5 concludes the whole paper and puts forward suggestions of future studies.
2.0 Literature Review
2.1 Price-Earnings Ratio
Price-Earnings Ratio is a widely used valuation ratio, which is calculated as a company’s current share price divided by its earnings per share (EPS). As Huang and Wirjanto (2011) said that “the price to earnings (P/E) ratio is arguably one of the most widely used valuation metrics in the financial market“(p.1). The P/E ratio is sometimes known as “price multiple” or
“earnings multiple” as it reflects how many times earnings investors are willing to pay for per dollar of earnings (Financial Times, 2014). For example, if a company has a P/E ratio of 20, it means that an investor is willing to pay $20 for $1 of current earnings. Kennon (2014) pointed out that value investors have long considered the price earnings ratio (P/E) ratio for short) as a useful metric for evaluating the relative attractiveness of a company's stock price.
In general, compared with a lower P/E, a high P/E indicates that investors are expecting higher earnings growth in the future. According to Financial Times (2014), investors are normally better off buying a stock with a low P/E ratio than one with a high ratio, as they are getting more earnings for their money. Research has found that low PE stocks have given a higher return to investors than high PE stocks over the last 70 years. However, there are some pitfalls of P/E ratio should be remarked. Firstly, earnings are accounting earnings, which can be manipulated through depreciation and inventory. Secondly, P/E ratio is generally useful in comparisons, but it is meaningless in a single figure. Therefore, this paper will pay much attention on the comparisons of results, not on a certain number.
2.2 Relationship between Firm Performance and P/E ratio
Mathematically, P/E ratios are possible to be negative, when the earnings of a company is negative (Conenen, 2012). A negative P/E ratio implies that the company is losing money and it is not an attractive investment to investors. Usually, negative P/E ratios are showed as “N/A” in report, as companies are not willing to tell investors that they are losing money (Conenen, 2012). However, the authors of this report think that a negative figure of P/E ratio cannot be ignored, as it may contains much information, or problems of a company. How a negative P/E ratio firm performs is considerable. In addition, some researchers believed that negative P/E firms are different to positive P/E firms, such as Basu, Chen et al., Fama and French, and Lakonishok et al., so their studies segregated the negative multiple firms from the positive ones (Basu, 1977, Chen et al., 1991, Fama and French, 1992, 1993, 1995, Lakonishok et al., 1994, as cited in Athanassakos, 2014).
However, how negative P/E firms differ from those that have a positive P/E is still a question.
Athanassakos did a research on whether negative P/E stocks significantly different from positive P/E firms using Canadian stock market data for the period 1985-2010. Athanassakos (2014) found that firms with negative multiples are indeed different from firms with positive multiples in two aspects. First, a relatively small number of firms with negative multiples experience high forward stock returns (Athanassakos, 2014). Second, negative P/E firms are different from positive P/E firms in firm value, size, liquidity and business risk premiums (Athanassakos, 2014). At the end, Athanassakos (2014) concluded that “prior academic research was correct in excluding negative multiple firms from their analyses” (p.1). Howvwe, Athanassakos (2013) still considered that there is a large body of academic research has examined the performance of firms with different levels of positive price-to-earnings (P/E) stocks, but there is not much research with regards to the performance of negative P/E firms and how the performance compares with the most widely examined positive multiples firms.
Therefore, it is worth to do analysis on performance and characteristic of positive P/E ratio and negative P/E ratio firms and make contribution on expanding empirical research on this issue.
2.3 P/E Ratio Analysis in Asia
Chinese firms’ P/E ratios have caught much attention recently. It seems that China has a P/E ratio comparable to or lower than that in prevailing mature markets, in particular, the U.S.
markets (Yu, 2008, as cited in Huang, & Wirjanto, 2011). According to Huang and Wirjanto’s research, China’s P/E ratio is comparable to that of the U.S (2011). Specifically, the P/E ratio is
negatively associated with earnings volatility in both the Chinese and U.S. stock markets with an economically significant magnitude and historical earnings volatility is considerably higher in China than in the U.S (Huang, & Wirjanto, 2011). However, Huang and Wirjanto (2011) found that, “compared with the U.S., China exhibits not only larger earnings volatility but also a higher sensitivity of P/E to earnings volatility, resulting in a much larger portion of the P/E ratio negatively affected by earnings volatility “(p.24). It means that higher earnings volatility in China offsets higher growth prospect in setting the P/E ratio, making its P/E ratio much closer to what is observed empirically than otherwise implied by its growth rate (Huang, &
Wirjanto, 2011). That is why China’s seemingly low P/E ratio is not surprising in light of the economic growth that it has experienced (Huang, & Wirjanto, 2011).
Japanese companies experienced high P/E ratios in the history. According to Drysdale and Gower’s research, the P/E ratio has been observed to be higher in Japan than in the United State ever since the early 1970s because of the lower discount rate in Japan (1999). Meanwhile, Drysdale and Gower (1999) viewed that there are other explanations, such as a higher expected growth rate in Japan. Afterwards, French and Poterba (1991, as cited in Kato, Li, & Skinner, 2012) found that Japanese companies had high P/E ratios in the 1980s and thought that was partly driven by differences in accounting pushing down EPS numbers, including the fact that most financial statements in Japan were not consolidated. Besides, French and Poterba (1991, as cited in Kato, Li, & Skinner, 2012) said that these accounting differences had largely disappeared by the early 2000s, which possibly explains at least part of the upward trend in Japanese P/E ratios.
Based on P/E ratio valuation, South Korea was seemed as one of the cheapest markets in the world in 2002. According to Jau and Mahmud (2002), South Korea's valuations was very attractive and close to a historical low in 2002, as it had an average forecast price-earnings (PE) ratio of 7.7 times for 2002, 6.8 times for 2003, and 6.3 times for 2004. Besides, Jau and Mahmud (2002) said that, in 2002, South Korea looked even more attractive relative to other major markets in rest of the world, becauseSouth Korea's a forecast PE ratio was only about a third of the US'. In Jau and Mahmud’s evaluation, only 2 companies out of the top 15 companies have forecast PE ratios higher than 10 times for 2003, and all except 1 have forecast PE ratios lower than 10 times for 2004 (2002).
Similar to Japan, Poitras et al. (2001, as cited in Tabassum, Kaleem, & Nazir, 2013) investigated Singaporean companies and found that the managers of the Singaporean companies manipulate earnings through asset sales when they are facing low earning per share as compared to last years. Lau et al. (2002, as cited in Emamgholipour, Pouraghajan, Tabari, Haghparast, & Shirsavar, 2013) investigated the relationship between stock returns and systematic risk with firm size, the ratio of book value to market value of equity, price to earnings ratio, the ratio of cash flow to price and sale growth in Singapore, by using 82 companies listed in the Singapore Stock Exchange during the period 1988-1996, finding that results for Singaporean companies were indicating that there was no significant relationship between the ratio of book value to market value (BTM) and earnings to price ratio (E/P) with stock returns.
According to this paper’s research above, there are some shortages of studies on comparison of positive P/E ratio firms and negative P/E ratio firms in Asian countries. Firstly, most of attentions are laid on positive P/E ratio firms, some negative P/E ratio figures, the firms with negative P/E ratio and problems exposed on negative P/E ratios are ignored. Secondly, studies on P/E ratio are mainly concentrated on financial investment analysis, there are few studies analysis the relationship between firm performance and P/E ratio. Firm characteristics behind a P/E ratio figure should be explored. Thirdly, most of P/E ratio analyses are focused on or compared to the U.S., perhaps, because the U.S. is one of prevailing mature markets.
This study compares between positive P/E ratio firms and negative P/E ratio firms in the selected Asian countries, answering two key questions, that whether performance of negative P/E ratio firms are different from positive P/E firms, and what characteristics are significantly different between firms with negative P/E ratio and positive P/E ratio. This paper aims to investigate the relationship between P/E ratio and firm performance in Asia, to fill those gaps, and answer the two key questions above.
3.0 Data and Methodology
3.1 Sample
The sample of this paper contains four Asian countries: China (CHN), Japan (JPN), South Korea (KOR) and Singapore (SGP). All data is collected from the Thomson One Database. The data of China does not include Hong Kong, which is consistent with the data classify in the Thomson One. The time period for the sample is from 2004 to 2013. And the financial time period is from 2002 to 2012. All the data are calculated and recorded in the USD.
Based on P/E ratio, all firms are divided into two groups. One group contains firms with positive P/E ratio, and another group includes firms with negative P/E ratio. The variables to compare the positive and negative P/E ratio are EBIT Margin, Current ratio, Cash, Debt, Turnover, EPS growth, EBIT growth, Sales growth, Market CAP, return and P/B ratio.
Therefore, the data collected from Thomson One database for four countries are the trailing Earnings per share (EPS), Assets Turnover, Book Value per Share (P/B), Cash and Short Investments, Earning before Interest and Tax (EBIT), growth of EBIT, growth of EPS, Close Price, Sales, Total Assets, Total Debt, Total Investment Return, Market CAP and Current Ratio.
To eliminate likely data error, according to Fama and French (1992), firms with P/E ratio over 100, or less -100 are deleted. Finally, the sample of this paper is consists of 29,939 of the observations (6,456 unique companies) for four countries from 2004 to 2013. 29,081 positive P/E ratio observations with 6,379 unique companies and 858 negative P/E ratio observations with 783 unique companies are included in the sample. Sorting by countries, the sample of China has 8,732 observations with 2,251 unique companies; the sample of has 14,263 observations with 2,582 unique companies, the sample of South Korea contains 4,917 observations with 1,148 unique companies and the sample of Singapore includes 2,027 observations with 466 unique companies.
Table 1 reports the number of firms between 2004 and 2007. For example, in 2004, there are 1,962 firms selected into sample. From Table 1, the authors of this report find that the number of firm was stably increasing from 2004 to 2007. However, after 2007, the increment of firm’s number became smaller and smaller, even was negative, until 2011. The decrease of firm’s number may be caused by the financial crisis, as previous studies said that some companies were not willing to report low or negative P/E ratio.
Table 1: Number of firm in sample of each year
Year Number
2004 1,962
2005 2,271
2006 2,542
2007 2,943
2008 3,149
2009 3,233
2010 2,764
2011 3,063
2012 3,933
2013 4,079
Total 29,939
3.2 Methodology
This paper uses the trailing P/E ratio to do analysis. According to Pratt (2001), the 12 month trailing P/E ratio is the most common and traditional approach for analysis the data from the previous year or next year. Therefore, this paper uses the previous 12 months data to calculate earnings per share (EPS). Trailing P/E ratio is equals to current price divided by previous 12-month earnings per share. The function of trailing P/E ratio is
The current share price for this paper is collected on 1 January for each year, because, usually, the fiscal year is from 1 Jan to 31 Dec and 1 January is the start of year. Therefore,. the function is also can be written as
The definitions of the dependent variables, which used to measure firms’ performance and characteristics for positive and negative P/E ratio firms, are followed as: BEIT margin is EBIT (t) over sales (t). Current ratio is total assets over total liabilities. Cash is cash and short term investment over total assets. Debt is total debt which including the short term debt and long term debt. Turnover is the assets turnover which calculates as sales over assets. EPS growth is EPS (t) minus EPS (t-1) and then over EPS (t-1). EBIT growth is EBIT (t) minus EBIT (t-1)
and then over EBIT (t-1). Sales growth is sales (t) minus sales (t-1) and then over sales (t-1).
Market CAP is the year end market capitalization for one year. Return is the total stock investment return for one year which calculated as TOTAL INVESTMENT RETURN = (Market Price Year End + Dividends Per Share + Special Dividend -Quarter 1 + Special Dividend-Quarter 2 + Special Dividend-Quarter 3 + Special Dividend-Quarter 4) / Last Year's Market Price-Year End - 1) *100. Skewness is used to find the asymmetry of a series of data, which is marked as SKEW in this paper. According to Dictionary of Economics (2009), there are three possible situations.
1) When SKEW > 1, it means the data is positively skewed and the median result is more accurate than the mean result.
2) When SKWE < - 1, it means the data is negatively skewed and the median result is more accurate than the mean result.
3) When 1 ≥ SKWE ≥ -1, it means the data is relatively symmetric and the mean result is more accurate than the median result.
To test whether the performance of positive P/E ratio and negative P/E ratio firms are different, this paper use both Mood Median test and Kolmogorov–Smirnov test. The hypotheses of Moon Median test is:
H0: median of positive companies = median of negative companies.
For K-S test:
H0: population distribution of positive companies = population distribution of negative companies.
For result, if the result in Moon Median test, or K-S test, is 0.05, it means that the performance of positive P/E ratio firms and negative P/E ratio firms are equal at 0.05 significant levels.
Otherwise, the result rejects the H0, which means the performance of positive P/E ratio firms is different from the performance of negative P/E ratio firms.
4.0 Results and Discussions
4.1 Summary Statistics
Table 2 and Table 3 are data description for positive P/E ratio firms and negative P/E ratio firms separately. Table 2 shows that the median numbers for each variable are all smaller than the mean numbers in positive P/E ratio firms. Similarly for negative P/E ratio firms, Table 3 also shows that the median value is smaller than the mean value. Pay attention to the SKEW in the last column, this paper finds that all the value are great than one except the P/E in negative P/E ratio firms. Therefore, Moon Median test and Kolmogorov–Smirnov test are more suitable for this research.
Table 2: Data Description of Positive P/E ratio firms
Variables Mean Median Max Min SKEW
EBIT MARGIN 0.112 0.073 -1.187 14.560 28.2
Current Ratio 1.846 1.460 0.040 52.790 7.9
CASH 0.160 0.132 0.001 0.876 1.5
Debt 616.795 59.400 0.010 163977.040 18.8
Turnover 2.005 1.226 0.050 992.800 66.1
EPSgrowth 38.721 10.000 -99.900 996.670 3.7
EBITgrowth 0.323 0.155 -523.615 986.143 65.1
REVgrowth 0.239 0.125 -0.991 672.263 131.1
Market CAP 1298.013 231.080 0.960 775773.350 48.0
Return % 20.173 4.520 -99.020 963.330 3.0
P/E 23.603 17.000 0.004 100.000 1.5
P/B 7.031 3.290 -81.070 99.750 3.6
Table 3: Data Description of Negative P/E ratio firms
Variables Mean Median Max Min SKEW
EBIT MARGIN 0.041 0.026 -1.051 2.033 9.258
Current Ratio 1.608 1.270 0.100 40.020 12.986
CASH 0.129 0.105 0.001 0.644 1.669
Debt 433.830 65.415 0.030 16216.170 6.212
Turnover 1.514 1.073 0.156 26.410 7.073
EPSgrowth -35.531 -68.585 -99.980 844.780 4.434
EBITgrowth -0.189 -0.402 -6.163 100.500 26.803
REVgrowth 0.084 0.017 -0.874 7.478 8.238
Market CAP 435.473 78.525 2.760 17349.190 6.866 Return % -11.940 -20.235 -91.780 603.770 4.028
P/E -33.467 -27.536 -100.000 -0.019 -0.775
P/B 6.569 3.885 -74.620 83.830 2.432
Notes: The first column of the table is the Variables Name. The second column is the mean values of the positive/negative P/E ratio. The third column is the median of the positive/negative P/E ratio. The fourth and fifth column are Max and Min values. The last column is the SKEW.
Comparing Table 2 and Table 3, it is easy to be found that all variables’ mean values in firms with negative P/E ratio are lower than that in firms with positive P/E ratio. The biggest difference occurs in market capitalization. The market capitalization of positive P/E ratio firms is 1298.013 on average, while the mean market capitalization of negative P/E ratio firms is only 435.473, which is one-third of firms with positive multiples. Similarly, the comparison of medium value also shows the biggest gap in market capitalization. Besides, positive and negative P/E ratio firms have big differences in debt, EPS growth, one-year stock return. Such results are displayed in Table 4. Whether such differences are significant will be estimated by
this paper further through Mood Median test and Kolmogorov–Smirnov test.
Table 4: Mean and Median Comparisons between Positive and Negative Firms
Variables
Mean Median
Positive P/E ratio firms
Negative P/E ratio firms
Difference
Positive P/E ratio firms
Negative P/E ratio firms
Difference
EBIT MARGIN 0.112 0.041 0.071 0.073 0.026 0.047
Current Ratio 1.846 1.608 0.238 1.46 1.27 0.19
CASH 0.16 0.129 0.031 0.132 0.105 0.027
Debt 616.795 433.83 182.965 59.4 65.415 -6.015
Turnover 2.005 1.514 0.491 1.226 1.073 0.153
EPSgrowth 38.721 -35.531 74.252 10 -68.585 78.585
EBITgrowth 0.323 -0.189 0.512 0.155 -0.402 0.557
REVgrowth 0.239 0.084 0.155 0.125 0.017 0.108
Market CAP 1298.013 435.473 862.54 231.08 78.525 152.555 Return % 20.173 -11.94 32.113 4.52 -20.235 24.755
P/E 23.603 -33.467 57.07 17 -27.536 44.536
P/B 7.031 6.569 0.462 3.29 3.885 -0.595
For each country, the mean values of P/E ratio in positive and negative groups are showed in Table 5. From the last column, which presents difference in mean value of P/E ratio between positive P/E ratio firms group and negative P/E ratio firm group, it could be found that China has the biggest P/E ratio difference in positive and negative P/E ratio firms. The difference is more than twice larger than that in Singapore (79.2 in China, and 24.7 in Singapore). The difference between Japan and South Korea is not significant (44.7 vs. 46.3). Such results indicate that firms’ difference is large in China, that when some companies earned huge quantities of money, some suffered heavy loss in China. Companied with China, such problem may less outstanding in Singapore.
Table 5: Mean Values of P/E Ratio in Each Country Country Positive P/E ratio
firms
Negative P/E ratio firms
Gap
China 34.7 -44.5 79.2
Japan 12.0 -32.7 44.7
South Korea 16.4 -29.9 46.3
Singapore 11.4 -13.3 24.7
4.2 Comparison Analysis
Table 6 presents the results of Mood Median test and Kolmogorov–Smirnov test. As showed in Table 6, most of results are significant at 1%, except debt and P/B ratio in K-S test. Such results mean that the null hypothesis both in Mood Median test and K-S test should be rejected, and the performances between positive P/E firms and negative P/E firms are quite different. The
differences between positive and negative P/E ratio firms are much significant in term of EBIT margin, current ratio, cash, assets turnover, EPS growth, EBIT growth, rev growth, market cap, and return of stock.
Table 6: Results of Mood Median Test and K-S Test
Variables Positive P/E ratio firms Negative P/E ratio firms
Mood Median Test
K-S test
Median 25% 75% Median 25% 75% Sig Sig
EBIT MARGIN 0.073 0.002 0.007 0.026 0.001 0.005 .000 .000 Current Ratio 1.46 0.04 0.145 1.27 0.021 0.076 .000 .000
CASH 0.132 0.001 0.005 0.105 0.001 0.004 .000 .000
Debt 59.4 12.342 44.573 65.415 14.458 52.216 0.002 .267 Turnover 1.226 0.037 0.132 1.073 0.022 0.081 .000 .000 EPSgrowth 10 1.233 4.455 -68.585 1.161 4.193 .000 .000 EBITgrowth 0.155 0.008 0.029 -0.402 0.039 0.139 .000 .000 REVgrowth 0.125 0.006 0.02 0.017 0.005 0.02 .000 .000 Market CAP 231.08 25.576 92.366 78.525 14.571 52.624 .000 .000 Return % 4.52 0.637 2.299 -20.235 0.57 2.059 .000 .000
P/E 17 0.024 0.087 -27.536 0.271 0.98 .000 .000
P/B 3.29 0.065 0.235 3.885 0.104 0.376 .000 .034
Besides, this paper compare average P/E ratio between four countries: China, Japan, South Korea and Singapore during the period 2004-2014. The results are showed in Figure 1. From Figure 1, this paper finds that China has the highest P/E ratio. and Singapore have the lowest P/E ratio. The P/E ratio of Japan, South Korea and Singapore has no big difference. To the trends of P/E ratio fluctuations during 2004-2014, this paper finds that Japan, South Korea and Singapore are very similar. All of them are concentrated on the interval between 10 and 20.
And all of them experienced an increase between 2004 and 2007, witch followed by a decrease during 2008-2010 and a recovery after 2010. Such trends are consistent with the changes of firm numbers, as talked above, and may be caused by the 2007-08 financial crises. Such results also reflect that Japan, South Korea and Singapore were heavily influenced by the 2007-08 financial crises.
Compared with other three countries, the changes of P/E ratio in China is most unstable. It may be caused by China is an emerging market. The instability is a result of low degree of information disclosure and the imperfect system in China. Besides, the high increase pre- and pose-financial crisis, and deferred decrease during financial crisis may because of Chinese government macroscopic readjustment and control. It reflects that, compared to other countries, China suffered less influence from the 2007-08 financial crises. The unique performance of Chinese market is attractive to further studies.
Figure 1: The P/E Ratio of China, Japan, South Korea and Singapore.
5.0 Conclusions
Using data of four Asian countries: China, Japan, South Korea and Singapore for the period 2004-2014, with 29,939 observations (6,456 unique companies), the purpose of this paper was to examine whether the performance of negative P/E ratio firms were significantly different from positive P/E ratio firms, and what characteristics are between negative and positive P/E ratio firms. To do that this paper used both Mood Median test and Kolmogorov–Smirnov (K-S) test.
This paper found that the performance between negative P/E ratio firms and positive P/E ratio firms was significantly different, especially in terms of EBIT margin, current ratio, cash, assets turnover, EPS growth, EBIT growth, rev growth, market cap, and return of stock. Such results were partly consistent with previous studies that firms with negative multiples are indeed different from firms with positive multiples, and the value, size, liquidity and business risk premiums behave differently for negative and positive P/E firms (Athanassakos, 2014).
In addition, this paper further found differences between ability of development, such as EPS growth and EBIT growth. However, as firm performance is a complex and comprehensive concept, it could be measured from multiple aspects and hard to be measured. In addition, as there are rare studies on negative P/E ratio firms, problem exposed on negative P/E ratio may be ignored. For studies in the future, this paper suggests pay more attention on firms with negative P/E ratio and increase reasonable measures of firm performance.
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