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Languages : en
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The importance of earnings response coefficient (ERC) research arises mainly from the need to enhance confidence of a firm's stakeholders in accounting information announcements, especially the equity investors, enabling them to make informed stock decisions. Due to the significance of this subject, this paper provides a review of the extant ERC literature and expounds on its evolution and development of the relevant theories, offers perspectives, and highlights the models used since 1968 when the earnings-to-returns relationship first became prominent. The study also evaluates the application of the ERC perspective and highlights the main empirical findings and also elucidates on related research methodologies applied to date and incorporates the relevant explicit and implied critiques. The main research results found while conducting this review supports the relevance of accounting information announcements to stock price formations, and therefore enhancing the confidence of investors and firm's stakeholders in such announcements (Ball & Brown, 1968; Collins & Kothari, 1989; Cheng, 1994; Kothari et al., 2010; Ariff et al., 2011; Hwang & Zhang, 2012; Patatoukas, 2013; Mostafa & Dixon, 2013; Al-Baidhani et al., 2017). Researchers also calculated and evaluated relevant ERCs using different methods such as event study method and regression methods, and applying different approaches such as individual stocks approach and portfolios approach, as detailed in this review. In addition to the enhancement of the stakeholders' confidence in the accounting information, this review paper will be useful to financial accounting standards setters and contributes to a holistic understanding of the literature on earnings-to-returns relationship.
Author:
Publisher:
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Category :
Languages : en
Pages :
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Book Description
The importance of earnings response coefficient (ERC) research arises mainly from the need to enhance confidence of a firm's stakeholders in accounting information announcements, especially the equity investors, enabling them to make informed stock decisions. Due to the significance of this subject, this paper provides a review of the extant ERC literature and expounds on its evolution and development of the relevant theories, offers perspectives, and highlights the models used since 1968 when the earnings-to-returns relationship first became prominent. The study also evaluates the application of the ERC perspective and highlights the main empirical findings and also elucidates on related research methodologies applied to date and incorporates the relevant explicit and implied critiques. The main research results found while conducting this review supports the relevance of accounting information announcements to stock price formations, and therefore enhancing the confidence of investors and firm's stakeholders in such announcements (Ball & Brown, 1968; Collins & Kothari, 1989; Cheng, 1994; Kothari et al., 2010; Ariff et al., 2011; Hwang & Zhang, 2012; Patatoukas, 2013; Mostafa & Dixon, 2013; Al-Baidhani et al., 2017). Researchers also calculated and evaluated relevant ERCs using different methods such as event study method and regression methods, and applying different approaches such as individual stocks approach and portfolios approach, as detailed in this review. In addition to the enhancement of the stakeholders' confidence in the accounting information, this review paper will be useful to financial accounting standards setters and contributes to a holistic understanding of the literature on earnings-to-returns relationship.
Author: Jennifer Francis
Publisher: Now Publishers Inc
ISBN: 1601981147
Category : Business & Economics
Languages : en
Pages : 97
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Book Description
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
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Languages : en
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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: Charles I. Harter
Publisher:
ISBN:
Category :
Languages : en
Pages : 218
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Book Description
Author: Krishnamoorthy Ramesh
Publisher:
ISBN:
Category : Corporate profits
Languages : en
Pages : 262
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Author: C. S. Agnes Cheng
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Author: Malek El Diri
Publisher: Springer
ISBN: 3319626868
Category : Business & Economics
Languages : en
Pages : 120
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Book Description
This book provides researchers and scholars with a comprehensive and up-to-date analysis of earnings management theory and literature. While it raises new questions for future research, the book can be also helpful to other parties who rely on financial reporting in making decisions like regulators, policy makers, shareholders, investors, and gatekeepers e.g., auditors and analysts. The book summarizes the existing literature and provides insight into new areas of research such as the differences between earnings management, fraud, earnings quality, impression management, and expectation management; the trade-off between earnings management activities; the special measures of earnings management; and the classification of earnings management motives based on a comprehensive theoretical framework.
Author: Ralf Ewert
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 142
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Book Description
Earnings Management, Conservatism, and Earnings Quality reviews and illustrates earnings management, conservatism, and their effects on earnings quality in an economic modeling framework. Both earnings management and conservative accounting introduce biases to financial reports. The fundamental issue addressed is what economic effects these biases have on earnings quality or financial reporting quality. Earnings Management, Conservatism, and Earnings Quality reviews analytical models of earnings management and conservatism and shows that both can have beneficial or detrimental economic effects, so a differentiated view is appropriate. Earnings management can provide additional information via the financial reporting communication channel, but it can also be used to misrepresent the firm's position. What the authors find is that similar to earnings management, conservatism can reduce the information content of financial reports if it suppresses relevant information, but it can be a desirable feature that improves economic efficiency. The approach to study earnings management, conservatism, and earnings quality is based on the information economics literature. A variety of analytical models are reviewed that capture the effects and subtle interactions of managers' incentives and rational expectations of users. The benefit of analytical models is to make precise these, often highly complex, strategic effects. They offer a rigorous explanation for the phenomena and show that sometimes conventional wisdom does not apply. The monograph is organized around a few basic model settings, which are presented in simple versions first and then in extensions to elicit the main insights most clearly. Chapter 2 presents the basic rational expectations equilibrium model with earnings management and rational inferences by the capital market. Chapter 3 is devoted to earnings quality and earnings quality metrics used in many studies. Chapter 4 studies conservatism in accounting. Finally, the authors examine the interaction between conservatism and earnings management. Each chapter ends with a section containing a summary of the main findings and conclusions.
Author: Michael H. Neelan
Publisher: Nova Publishers
ISBN: 9781600213809
Category : Business & Economics
Languages : en
Pages : 192
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Book Description
Preface; The Role of Revenues and Costs in CEO Compensation; The Importance of Intellectual Capital Reporting: Perspectives from Finance Professionals; Has Regulation Changed the Market's Reward for Meeting or Beating Expectations?; Reaction of the Brazilian Stock Market to Positive and Negative Shocks; Earnings Management to Meet Earnings Benchmarks: Evidence from Japan; Audit in Ukraine; Auditor Reputation and Auditor Independence: Evidence from an Emerging Market; Trends of the Returns-Earnings Associations Over the Last Three Decades; Managers' Discretionary Behaviour, Earnings Management and Corporate Governance: An Empirical International Analysis; Index.
Author: William A. Barnett
Publisher: Emerald Group Publishing
ISBN: 1801178968
Category : Business & Economics
Languages : en
Pages : 202
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Book Description
This volume of the International Symposia in Economic Theory and Econometrics explores the latest economic and financial developments in Asia.
