Open AccessA Reexamination of Earnings Persistence on the Incremental Value Relevance of Earnings Levels and Earnings Changes
Author(s) -
Simon Yang
Publication year - 2018
Publication title -
international journal of accounting and financial reporting
Language(s) - English
Resource type - Journals
ISSN - 2162-3082
DOI - 10.5296/ijafr.v8i2.13160
Subject(s) - earnings , earnings response coefficient , post earnings announcement drift , earnings per share , price–earnings ratio , economics , valuation (finance) , stock (firearms) , financial economics , econometrics , monetary economics , accounting , mechanical engineering , engineering
This study reexaminesthe role of earnings persistence as to understand the incremental value relevance of earnings levels and earnings changes in explaining stock returns in the stock market of U.S. The results show that earnings levels and earnings changes together provide the higher value relevant information than each earnings variable alone in explaining stock returns. An increase in earnings persistence, approximated by different time-serial and firm-specific measures, puts more (less) value relevant weight on earning changes (levels). However, the complementary value relevance between earnings levels and earnings changes is somehow weak, implying that a possibly deteriorating valuation role for earnings levels and earnings changes may occur in the recent years for the U.S. stock market.