The Effects of Permanent and Transitory Earnings Changes on Earnings Response Coefficients, a Time-series Analysis of Financial Statements Subcomponents PDF Download
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Author: Thomas A. Carnes
Publisher:
ISBN:
Category :
Languages : en
Pages : 142
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Author: Thomas A. Carnes
Publisher:
ISBN:
Category :
Languages : en
Pages : 142
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Book Description
Author: Thomas A. Carnes
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ISBN:
Category : Price-earnings ratio
Languages : en
Pages : 284
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Author: Philip Roger Regier
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 186
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Author: Douglas Clifford Cerf
Publisher:
ISBN:
Category :
Languages : en
Pages : 248
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Author: Sangwan Kim
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ISBN:
Category :
Languages : en
Pages : 0
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Despite the central importance of equity analysts as information intermediaries in capital markets, prior studies provide only limited evidence on how analysts use tax information reported in financial statements. To seek a deeper understanding of the mechanisms that underlie analysts' use of tax information in GAAP financial statements, we investigate the association between sell-side equity analysts' forecasts and the change in earnings attributable to a change in ETRs (i.e., the tax change component of earnings). We provide evidence that the persistence of the tax change component of earnings embedded in analysts' forecasts is systematically lower than that implied by our model's time-series properties. Recent research shows that the persistence of the tax change component of earnings is a complex combination of both the persistence of pretax earnings and the persistence of the ETR. We provide evidence that the analysts' underestimation of the tax change component of earnings is primarily attributable to analysts' failure to impound the full implications of the difference between permanent and transitory ETR changes. The results also provide strong evidence that analysts' underreaction to the tax change component of earnings is significantly attenuated when managers voluntarily provide earnings forecasts. Further, analysts' incorporation of tax information into earnings forecasts becomes less biased after Regulation FD. This research answers the call from Graham, Raedy, and Shackelford (2012) for more research into the underlying fundamentals of tax-based information prepared in accordance with GAAP, and the extent to which various financial statement users, including sophisticated market participants such as equity analysts, use tax-based information.
Author:
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Category :
Languages : en
Pages :
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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: Krishnamoorthy Ramesh
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 262
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Author: Financial Accounting Standards Board
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 32
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Author: Curtis Alan Coffer
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 294
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uncertainty is high and when alternative information is a less accurate predictor of future earnings. The response coefficient for future earnings is predicted to be larger when uncertainty is high and when alternative information is a more accurate predictor of future earnings.
Author: Wendy M. Wilson
Publisher:
ISBN:
Category :
Languages : en
Pages : 53
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Book Description
This paper examines the information content of earnings following restatements of prior period earnings. Results indicate that the information content of earnings announcements declines in periods following a restatement, but that the loss of information content is temporary. In particular, the earnings response coefficients for earnings announcements surrounding a restatement exhibit a U-shaped pattern in which they return to pre-restatement levels over an average of four quarters, suggesting that the market's concern regarding subsequently reported earnings is somewhat transitory. The extent to which the earnings of restatement firms suffer a loss of information content varies across several dimensions. First, the loss of information content is greater for firms that restate earnings to correct revenue recognition errors than it is for other types of restatements. Second, the information content of earnings is significantly lower for firms that do not make changes to their financial reporting governance structure following a restatement relative to firms that initiate governance changes. Overall, the evidence presented in this paper is consistent with a short-term decline in investor confidence regarding financial reporting following restatements, but that recovery typically takes place within four quarters.
