Equity Book Values Greater Than Market Values: Accounting, Risk, or Mispricing>

Mary E. Barth, Doron Israeli, Suhas A. Sridharan

Research output: Working paper


Despite accounting conservatism, equity book values greater than market values (BTM > 1) are not rare. The question we address is why. We find BTM > 1 is not only not rare, but also pervasive and persistent. More importantly, BTM > 1 is not attributable to potentially overstated equity book values, which calls into question BTM as a measure of conservative accounting for nearly 30% of firms. Rather, BTM > 1 is attributable to low equity market values, which partially stem from macroeconomic risk and other risk that is different for firms with BTM > 1. These findings call into question the use of Fama and French’s HML factor to reflect risk for firms with BTM > 1. Mispricing associated with investor myopia in over-extrapolating weakening in a firm’s otherwise strong fundamental performance contributes to the low equity market values. Taken together, our findings reveal the BTM threshold of one has meaningful implications for accounting and finance.
Original languageEnglish
Number of pages55
Publication statusIn preparation - 2020


  • Book-to-market ratios
  • Conservatism
  • Macroeconomic risk
  • Extrapolation

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