Supply and Demand of Information Influencing Firm Valuation

Abstract

“Accounting represents firm information economics” is a premise for the allocation of scarce resources. Here, the analysis starts with a clean surplus model as the conceptual framework. Then, the theoretical firm information pertaining to the economic supply-and-demand features are incorporated within a path diagram. This framework is investigated empirically with simultaneous regression equations and a structural equation model (SEM). Both approaches have explanatory power. Also, a latent variable measure of internally generated intangible assets positively and significantly affects net income. Sensitivity subsamples investigate size and risk factors for robustness. Thus, this study expands the SEM financial accounting research frontier.