The Effects of Annual Accounting Data on Stock Returns and Trading Activity
Author | : Andrew Kusiak |
Publisher | : |
Total Pages | : 784 |
Release | : 1985 |
Genre | : Economic development |
ISBN | : |
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Author | : Andrew Kusiak |
Publisher | : |
Total Pages | : 784 |
Release | : 1985 |
Genre | : Economic development |
ISBN | : |
Author | : John G. Cragg |
Publisher | : University of Chicago Press |
Total Pages | : 185 |
Release | : 2009-05-15 |
Genre | : Business & Economics |
ISBN | : 0226116727 |
John G. Cragg and Burton G. Malkiel collected detailed forecasts of professional investors concerning the growth of 175 companies and use this information to examine the impact of such forecasts on the market evaluations of the companies and to test and extend traditional models of how stock market values are determined.
Author | : John Bildersee |
Publisher | : |
Total Pages | : 48 |
Release | : 1987 |
Genre | : Cost accounting |
ISBN | : |
Author | : Peta Stevenson-Clarke |
Publisher | : |
Total Pages | : |
Release | : 2000 |
Genre | : |
ISBN | : |
The fundamental relationship between accounting variables and firm valuation is a recurring theme in capital market research. This paper investigates this relationship within a balance sheet context and highlights the importance of controlling for relevant economic factors. We do this by conditioning explanatory power on the firm's relative financial leverage position, after controlling for cashflows and firm size, and using an arctan regression model to take account of temporary components in cash and earnings flows. Using data for 743 firm-years for Australian Stock Exchange listed stocks, we find that for firms which are 'above optimal leverage': (i) earnings contain a greater level of transitory items, particularly when firm size is small; and (ii) cashflows provide higher incremental information. Our results are consistent with investors perceiving earnings as progressively less informative as the probability of failure increases, and the likelihood of earnings manipulation for the purpose of reducing proximity to debt covenants increases.
Author | : Michael Arthur Firth |
Publisher | : |
Total Pages | : 202 |
Release | : 1977 |
Genre | : Business & Economics |
ISBN | : |
Author | : Yaniv Konchitchki |
Publisher | : |
Total Pages | : 45 |
Release | : 2014 |
Genre | : |
ISBN | : |
In this study, we hypothesize and find that financial statement analysis of firm profitability drivers applied at the aggregate level yields timely insights that are relevant for forecasting real economic activity. We first show that focusing on the one-hundred largest firms offers a cost-effective way to extract information embedded in accounting profitability data of the entire stock market portfolio. We then show that accounting profitability data aggregated across the one-hundred largest firms have predictive content for subsequent real Gross Domestic Product (GDP) growth. We also show that stock market returns have predictive content for future real GDP growth, while their predictive power varies with the length of the measurement window with annual stock market returns being the most powerful. Importantly, we find that the predictive content of our indices of aggregate accounting profitability drivers is incremental to that of annual stock market returns. An in-depth investigation of consensus survey forecasts shows that professional macro forecasters revise their expectations of real economic activity in the direction of the predictive content of aggregate accounting profitability drivers and stock market returns. Although macro forecasters are fully attuned to stock market return data, their forecasts of real GDP growth can be improved in a statistically and economically significant way using our indices of aggregate accounting profitability drivers. Our findings suggest that professional macro forecasters and stock market investors do not fully impound the predictive content of aggregate accounting profitability drivers when forecasting real economic activity. In additional analysis, we examine the association between stock market returns and the portion of subsequent real GDP growth that is predictable based on our indices of aggregate accounting profitability drivers but that is not anticipated by stock market investors. We find that this portion is positively related to stock market returns, suggesting that the macro predictive content of aggregate accounting profitability drivers is relevant for stock valuation. Overall, our study brings financial statement analysis to the forefront as an incrementally useful tool for gauging the prospects of the real economy that should be of interest to academics and practitioners.