Search results for "Earnings response coefficient"
showing 10 items of 12 documents
Options and Accounting Information: Empirical Evidence in Stock and Derivative Markets
2014
This study investigates the informational role of options trading in the price discovery process around the dissemination of accounting information, specifically annual and quarterly earnings announcements. Firstly, we examine the effect of options markets by analyzing stock market reaction to earnings news conditional on the availability of options markets. Secondly, we examine options-trading activity around the release of earnings news. Results show that when options trading is available, the options market enhances the price efficiency of equity markets. Moreover, the dissemination of earnings news is associated with significant unusual activity in the options market due to informed tra…
An empirical assessment of the Feltham-Ohlson models considering the sign of abnormal earnings
2006
Abstract This paper provides an empirical assessment of the Feltham-Ohlson models, distinguishing between firms with positive and negative abnormal earnings. Abnormal earnings persistence and conservatism parameters differ for these two groups; this implies different earnings prediction models and valuation functions for both profit-making and loss-making firms. The analysis refers to the period 1991-1999 and uses a sample of Spanish firms quoted on the Madrid S.E. The results suggest that our contextual approach is more useful than the non-contextual one to predict future abnormal earnings and explain current prices. Although the Ohlson (1995) model is accurate in forecasting future abnorm…
Earnings sustainability, economic conditions and the value relevance of accounting information
2013
Summary This study demonstrates that the value relevance of accounting information is influenced by the ability to capitalize investments in valuable resources. We use data from Sweden to show that firms that operate in industries in which accounting conservatism limits this capitalization display lower value relevance as a result of more unsustainable earnings components. However, when controlling for the different properties of sustainable and unsustainable earnings components, the difference vanishes. Moreover, we show that firms operating in industries in which more investments are immediately expensed display systematic temporal variations in the level of value relevance. We contend th…
The value relevance of losses revisited: the importance of earnings aggregation
2011
Accepted version of an article published in the journal: Global Business and Economics Review. Also available from the publisher at: http://dx.doi.org/10.1504/GBER.2011.040728 Prior research has suggested that earnings explain a larger portion of the variation in stock returns when disaggregated into components. This study shows that the increase in explanatory power stems primarily from disaggregation of negative earnings. When accounting earnings are sufficiently disaggregated into items, there is no longer a statistical difference in the value relevance of positive and negative earnings. Thus, negative earnings are also useful to stock investors. The findings are attributed to earnings p…
The Predictive Ability of Financial Information for Future Earnings: A European Perspective
2003
The objective of this paper is to analyse cross-national differences in the predictive ability of financial information (accounting and market data) for future earnings. We adopt a European perspective in our analysis by focusing on four representative European countries (France, Germany, Spain and the UK) in order to assess whether the institutional and accounting differences among them result in inter-country differences in the predictive value of financial information. In particular, we consider that differences in the extent of conservatism, due to country characteristics, such as the legal system (code-law vs common-law), the way companies finance their operations, and the relationship…
Empirical evidence of the effect of European accounting differences on the stock market valuation of earnings and book value
2002
Recently, a new dimension has been added to research in accounting harmonization by studying the effects of accounting practices and regulations on share price and return movements. Although there is an agreement of mutual recognition in the European stock markets of financial statements adapted to the directives, the differences between the European countries are still great. The objective of this study is to investigate the value relevance of alternative accounting measures (earnings and book value) constructed under different accounting systems in Europe. We investigate the differences in accounting practices through the relationship between earnings and book value, and the stock market …
Earnings conservatism: panel data evidence from the European Union and the United States
2006
This paper focuses on earnings conservatism, and provides new evidence based on procedures that account for variability at the firm level, drawing a comparison between the European Union and the United States. A key finding is that the estimated responsiveness of earnings to bad news is substantially higher when unobserved firm-specific effects are modelled. Furthermore, it is shown that accounting has become more conservative not only in the U.S. but also in the EU when taken as a whole, and there is little evidence of marked differences in the asymmetric timeliness of earnings between the two. Indeed, any changes in this property of earnings are likely to be attributable to a common facto…
The value relevance of accounting information during the global financial crisis: evidence from Norway
2013
This study investigates how the recent financial crisis influenced the value relevance of accounting information. The empirical analyses show that the book values of equity explained most of the cross-sectional variation in stock prices during the crisis. Still, the earnings response coefficient increased significantly during the period of the crisis. The analysis suggests a separation between the information content of book values and earnings in a crisis situation. The findings are consistent with book values being highly relevant as a proxy variable for liquidation values in a crisis, whereas earnings, in contrast to the balance sheet, capture information about the future earning capabil…
How fair-value accounting can influence firm hedging
2012
Published version of an article in the journal: Review of Derivatives Research. Also available from the publisher at: http://dx.doi.org/10.1007/s11147-012-9084-y The potential influence of accounting regulations on hedging strategies and the use of financial derivatives is a research topic that has attracted little attention in both the finance and the accounting literature. However, recent surveys suggest that company hedging can be substantially influenced by the accounting for financial instruments. In this study, we illustrate not only why but also how the accounting regulations may affect hedging behavior. We find that under mark-to-market accounting, most firms concerned with earnings…
Does the interaction between the accounting method choice and disclosure affect financial analysts’ information environment? The case of joint ventur…
2017
IAS 31 allowed firms to choose between proportionate consolidation and the equity method to record joint ventures in the consolidated accounts of the venturer. Moreover, this election implied a decision about including information in the primary financial statements or in the notes. This paper investigates if financial analysts perceive accounting information differently depending on the method chosen conditioned to the disclosure of the required information in the notes. We analysed a sample of Spanish firms during 2005–2010. We not only considered earnings forecasts, but also examined target prices and stock recommendations. Furthemore, we look at how this accounting choice affects analys…