Determinants of Discrepancy between Market and Book Value: A Case Study of Selected Listed Firms on KSE

Abstract

The purpose of this paper is to find the determinants of discrepancy between market and book values. In the literature, this discrepancy has been attributed mainly to intangible assets. However, theoretically some other factors such as advertising, machinery and equipment, leverage and managerial efficiency are also responsible for discrepancy between market and book values. In the literature, empirical research on these factors is rather scarce. Moreover, most of the studies take up one or two of these factors to explain the whole discrepancy between market and book values. This paper considers all these determinants simultaneously. For this purpose, we have selected 66 firms listed on KSE in Pakistan, for the period 2006 to 2013. We have applied FEM and Dynamic Panel Models for empirical results. Our results show that in addition to intangible assets, leverage and managerial efficiency also have positive impact on market value while surprisingly, advertising expenditures have negative impact on the market value of a firm.