Sustained Earnings and Revenue Growth, Earnings Quality, and Earnings Response Coefficients PDF Download
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Author: Aloke Ghosh
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
We show that firms reporting sustained increases in both earnings and revenues have (1) higher quality earnings and (2) larger earnings response coefficients (ERCs) in comparison to firms reporting sustained increases in earnings alone. With respect to earnings quality, firms with revenue-supported increases in earnings have more persistent earnings, exhibit less susceptibility to earnings management, and have higher future operating performance. With respect to response coefficients, firms with revenue-supported increases in earnings have both higher ERCs and lower book value response coefficients, consistent with the implications of the Ohlson (1995) model.
Author: Aloke Ghosh
Publisher:
ISBN:
Category :
Languages : en
Pages : 36
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Book Description
We show that firms reporting sustained increases in both earnings and revenues have (1) higher quality earnings and (2) larger earnings response coefficients (ERCs) in comparison to firms reporting sustained increases in earnings alone. With respect to earnings quality, firms with revenue-supported increases in earnings have more persistent earnings, exhibit less susceptibility to earnings management, and have higher future operating performance. With respect to response coefficients, firms with revenue-supported increases in earnings have both higher ERCs and lower book value response coefficients, consistent with the implications of the Ohlson (1995) model.
Author: Wikil Kwak
Publisher:
ISBN:
Category :
Languages : en
Pages : 204
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Book Description
Author: Sanjay Wikash Bissessur
Publisher: Rozenberg Publishers
ISBN: 9051709870
Category :
Languages : en
Pages : 217
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Book Description
Author: Shilpa Manaktala
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Book Description
Between July and December, 2002, 150 firms announced plans to voluntarily adopt the fair value method of accounting for stock-based compensation. We investigate whether such announcements increased the quality of these firms' earnings as perceived by market participants. Using two measures of earnings quality, the price/earnings relation and the earnings response coefficient, we find evidence consistent with an increase in earnings quality for these firms relative to a control set of firms that in 2002 did not announce plans to adopt the SFAS 123 stock-based compensation recognition provisions.
Author: Aloke Ghosh
Publisher:
ISBN:
Category :
Languages : en
Pages : 45
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Book Description
I examine the effect of various business strategies aimed at sustaining growth on quality and pricing of earnings. Earnings quality is predicted to be high when earnings growth results from sales increases, rather than cost reductions or income management of core and non-core operations, because firms signal competitive advantages in products. One implication of high earnings quality is that pricing of earnings will also be high. Consistent with the predictions, earnings multiples are the highest when earnings growth is sustained through sales growth. Firms that use income from core and non-core operations to sustain growth have high earnings multiples once growth rates are sustained for at least three years. These multiples are lower than those of firms with sustained sales and earnings increases. Firms almost never reduce operating costs over long periods to sustain earnings growth. Finally, I find that earnings multiples are high when sales are growing over successive years even when earnings do not increase.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper reports new findings from applying portfolio method, which shows a much bigger earnings impact on share prices (ERC) compared to the erstwhile reports of ERC using individual events, averaged over the sample. We estimate cumulative abnormal returns, CAR, across a test window for each quarterly earnings announcement event across one accounting year. The CARs are then regressed against earnings changes of individual firms and portfolios. The findings show a significant positive CAR when earnings increases; and a negative CAR if earnings declines. The ERC is very small in the test period of 2001-14, which is consistent with published results for years before 2000. The ERC size magnifies substantially due to the grouping effect used through portfolio formation. What is significant is that the use of portfolio method, by removing the idiosyncratic errors, show a price response very close to the size of earnings (i.e., ERC of 0.93) with a very high R-square of 75 percent. The last evidence supports strongly the value relevance accounting theory that has not seen much support from averaging the price responses of individual event responses.
Author: Jeff Coulton
Publisher:
ISBN: 9780994369734
Category :
Languages : en
Pages :
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Book Description
Author: Oliveira, Jonas da Silva
Publisher: IGI Global
ISBN: 1522578188
Category : Business & Economics
Languages : en
Pages : 342
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Book Description
The fiscal market is an unpredictable torrent of information that modern organizations strive to understand. Business professionals dedicate themselves to understanding uncertain results around economic performance to improve management, reporting standards, and predict trends in financial statements. International Financial Reporting Standards and New Directions in Earnings Management is an essential reference source that discusses identifying the behavioral patterns of managers and the accounting policies they use in different opportunistic circumstances. Featuring research on topics such as earnings quality, risk reports, and investor protection, this book is ideal for regulatory authorities, accountants, impression managers, auditors, academics, students, and researchers seeking coverage on the theoretical, empirical, and experimental studies that relate to the different themes within earnings management.
Author: Pietro Perotti
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper examines how commonly used earnings quality measures fulfill a key objective of financial reporting, i.e., improving decision usefulness for investors. We propose a stock-price-based measure for assessing the quality of earnings quality measures. We predict that firms with higher earnings quality will be less mispriced than other firms. Mispricing is measured by the difference of the mean absolute excess returns of portfolios formed on high and low values of a measure. We examine persistence, predictability, two measures of smoothness, abnormal accruals, accruals quality, earnings response coefficient, and value relevance. For a large sample of U.S. non-financial firms over the period 1988-2007, we show that all measures except for smoothness are negatively associated with absolute excess returns, suggesting that smoothness is generally a favorable attribute of earnings. Accruals measures generate the largest spread in absolute excess returns, followed by smoothness and market-based measures. These results lend support to the widespread use of accruals measures as overall measures of earnings quality in the literature.
Author: James A. Ohlson
Publisher: Now Publishers Inc
ISBN: 1933019425
Category : Business & Economics
Languages : en
Pages : 90
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Book Description
Earnings, Earnings Growth and Value presents a model of earnings and dividends leading up to the core principle that growth in earnings explains the price to forward-earnings ratio. This model is referred to as the OJ (Ohlson and Jeuttner-Nauroth) model. The OJ model takes into account two growth measures of earnings -- the near term and the long term -- to explain the price to forward-earnings ratio. Further, the model allows for a broad set of dividend policies. Earnings, Earnings Growth and Value starts from the basics and derives the valuation formula which shows how value depends on earnings and their growth. Some of the topics developed here are include dividend policy irrelevancy (DPI), how one extends the model to incorporate an underlying information dynamic, accounting rules and their influence on the model, and ways in which the model can be extended to reflect operating vs. financial activities. Earnings, Earnings Growth and Value should be required reading for researchers in accounting and finance with an interest in accounting theory, equity valuation and financial accounting.
