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Deferred revenue changes as a leading indicator for future financial performance: Evidence from China

Ke Zhong (Central Washington University, Lynnwood, Washington, USA)
Fang Wang (Central Washington University, Lynnwood, Washington, USA)
Lihui Zhou (Southwestern University of Finance and Economics, Chengdu, China)

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 4 December 2017

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Abstract

Purpose

The purpose of this paper is to investigate whether deferred revenue changes can serve as a leading indicator for firms listed on China’s stock markets, and whether China’s market participants can appropriately incorporate future performance implications of deferred revenue changes.

Design/methodology/approach

Empirical/archival/regression analysis.

Findings

The authors find that deferred revenue changes are positively associated with the next two years’ sales growth, gross profit margin, profit margin, and return on assets, suggesting that deferred revenue changes can serve as a valid leading indicator for future financial performance. The authors also find that Chinese investors tend to underweight future performance implications of deferred revenue changes.

Originality/value

To the authors’ knowledge, this study is among the first research to examine deferred revenue changes as a leading fundamental indicator and market underreaction to reported accounting information for firms listed on China’s stock markets.

Keywords

Citation

Zhong, K., Wang, F. and Zhou, L. (2017), "Deferred revenue changes as a leading indicator for future financial performance: Evidence from China", Asian Review of Accounting, Vol. 25 No. 4, pp. 549-568. https://doi.org/10.1108/ARA-11-2015-0118

Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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