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The Choice of Fiscal Year and the Earnings–Return Relationship
Author(s) -
Dierker Martin J.,
Kim Taekyu,
Park Sang Hyun
Publication year - 2019
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12270
Subject(s) - comparability , earnings , earnings per share , economics , transparency (behavior) , audit , fiscal year , stock (firearms) , monetary economics , earnings response coefficient , business , accounting , finance , mechanical engineering , mathematics , combinatorics , political science , law , engineering
The positive earnings–return relationship is weaker for US‐listed firms with a calendar fiscal year. Furthermore, stock returns for these firms are more positively related to industry earnings, as a common fiscal year‐end improves comparability of earnings. December fiscal year‐ends are more frequent among large and low market‐to‐book industries and firms, consistent with firms trading off the benefits of better comparability against the associated higher accounting and auditing costs. Our results imply that the prevalence of a single standard for fiscal year‐ends in other Asia–Pacific economies is indeed beneficial, as it promotes market transparency.