A Study Of Intertemporal Variation In Earnings Response Coefficients
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Discussion on Noisy Accounting Earnings Signals and Earnings Response Coefficients
Author | : Jennifer L. Kao |
Publisher | : |
Total Pages | : |
Release | : 2013 |
Genre | : |
ISBN | : |
This paper extends the growing literature on factors affecting cross-sectional and intertemporal variation in earnings response coefficients. It tests the empirical implications of recent theoretical work by Choi and Salamon (1989) and Holthausen and Verrecchia (1988), who model the degree of price adjustment associated with earnings announcements as a function of the amount of noise or garbling in the accounting earnings signal relative to valuation-relevant cash flows or dividends. The particular earnings measurements considered relate to U.S. multinational companies and to the differences in income determination under Statement of Financial Accounting Standards (SFAS) No. 8 and SFAS No. 52. The study finds a modestly smaller relative price adjustment for a given amount of unexpected earnings for multinational firms than for nonmultinationals during the SFAS No. 8 period. This finding is consistent with multinationals producing "noisier" earnings signals during this time period. However, several indirect measures suggest that there was greater prior probability uncertainty associated with the future cash flows or dividends of the nonmultinational sample. Accordingly, this cannot be ruled out as a competing explanation for the observed differences in the market's response to earnings signals during the SFAS No. 8 period. Following the implementation of SFAS No. 52, the earnings response coefficient increased substantively for firms whose accounting for translation gains or losses was most affected by this standard. These results suggest that the earnings measurements produced under SFAS No. 52 were perceived by market participants to be of higher quality (less noisy) than those produced under SFAS No. 8. The framework and analysis in this paper hold promise for investigating the relative informativeness of earnings signals produced under alternative income determination rules.
On the Temporal Variation of Earnings Response Coefficients in the Finnish Stock Market
Author | : Teppo Martikainen |
Publisher | : |
Total Pages | : 15 |
Release | : 1990 |
Genre | : |
ISBN | : 9789516833630 |
Variation in Earnings Response Coefficients
Author | : Douglas A. Schroeder |
Publisher | : |
Total Pages | : 42 |
Release | : 1992 |
Genre | : Accounting |
ISBN | : |
Specification Searches
Author | : E. E. Leamer |
Publisher | : |
Total Pages | : 392 |
Release | : 1978-04-24 |
Genre | : Mathematics |
ISBN | : |
Offers a radically new approach to inference with nonexperimental data when the statistical model is ambiguously defined. Examines the process of model searching and its implications for inference. Identifies six different varieties of specification searches, discussing the inferential consequences of each in detail.
Cross-sectional Variation of Measurement Error and Predictability of Earnings and Stock Returns
Author | : Jung Hoon Kim |
Publisher | : |
Total Pages | : 69 |
Release | : 2011 |
Genre | : |
ISBN | : |
In capital markets research, market expectation of future earnings plays a vital role. However, almost all proxies inevitably measure the market expectation of future earnings with error, which results in unsatisfactory empirical outcomes in prior research (e.g., small empirical values of earnings response coefficient and poor quality estimates of expected rates of return). Using analysts' consensus forecasts, this study investigates how noisy measurement of the market expectation of future earnings affects the predictability of future earnings and stock returns. Based on the errors-in-variables approach, this study first provides a framework to capture cross-sectional variation of the measurement error in analysts' consensus forecasts. With this framework in place, this study documents that analysts' consensus forecasts with more measurement error have less ability to predict future earnings and stock returns, and that incorporating information about cross-sectional variation of the measurement error can improve the predictability of future earnings and stock returns. These findings will be useful to accounting research that relies on the market expectation of future earnings and to practitioners seeking to forecast profitability and stock returns.
Review of Earnings Response Coefficient Studies
Author | : |
Publisher | : |
Total Pages | : |
Release | : 2017 |
Genre | : |
ISBN | : |
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.
Accounting Earnings Can Explain Most of Security Returns
Author | : Peter Douglas Easton |
Publisher | : |
Total Pages | : 31 |
Release | : 1990 |
Genre | : Stocks |
ISBN | : 9780646086972 |
Stocks, Bonds, Bills, and Inflation
Author | : Roger G. Ibbotson |
Publisher | : |
Total Pages | : 202 |
Release | : 1989 |
Genre | : Actions (Titres de société) - Prix - Prévision |
ISBN | : 9781556232312 |
Earnings Management
Author | : Joshua Ronen |
Publisher | : Springer Science & Business Media |
Total Pages | : 587 |
Release | : 2008-08-06 |
Genre | : Business & Economics |
ISBN | : 0387257713 |
This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?