e-journal

The value relevance of earnings levels in the return-earnings relation

---

Purpose – Prior studies provide mixed propositions on whether earnings levels or earnings changes
provide the better explanatory power for variations of stock returns and whether the time-series
behavior of earnings affects the value relevance of both earnings variables. This paper aims to
compare the value relevance of earnings levels with that of earnings changes in the return-earnings
relations.
Design/methodology/approach – The unobservable components model is used to estimate
permanent and transitory components of earnings.
Findings – The finding shows that the proxy ability of earnings changes for unexpected earnings
is sensitive to a firm’s time-series earnings permanence property and is unstable and noisy
when earnings contain predominantly transitory components, but that of earnings levels is not.
The results support earnings levels are a stable and better value relevant proxy in the return-earnings
relations.
Research limitations/implications – The findings imply that the valuation role of earnings levels
is important in the research relating to earnings components, earnings innovations, and equity
valuation, especially when earnings permanence is of interest.
Practical implications – The results provide a new understanding on the role of earnings levels in
many business decisions such as executive compensations, institutional investment and conservative
accounting where they often involve the choice of using levels and/or changes of earnings variables
in making decisions.
Originality/value – The paper contributes to the accounting literature by providing a new insight
into the valuation role of earnings levels in the return-earnings relations. The stable value relevance
of earnings levels also has important implications, especially for studies that use only earnings levels
to assess earnings quality and earnings attributes.

Keywords Earnings changes, Earnings levels, Earnings permanence, Accounting, US evidence Paper type

---

Ketersediaan

Tidak ada salinan data

Informasi Detail

Judul Seri

International Journal of Accounting and Information Management

No. Panggil

-

Penerbit

: Emerald Group., 2013

Deskripsi Fisik

International Journal of Accounting and Information Management Vol. 21 No. 4, 2013 pp. 260-284

Bahasa

English

ISBN/ISSN

-

Klasifikasi

-

Tipe Isi

-

Tipe Media

-

Tipe Pembawa

-

Edisi

-

Subjek

AKUNTANSI

Info Detail Spesifik

-

Pernyataan Tanggungjawab

Asmawati/Syahrial

Versi lain/terkait

Lampiran Berkas

Komentar

---

Anda harus masuk sebelum memberikan komentar