Earnings persistence and stock prices: empirical evidence from an emerging market
Journal of Financial Reporting and Accounting
ISSN: 1985-2517
Article publication date: 30 September 2014
Abstract
Purpose
This study aims to investigate the persistence ability of accounting variables, namely, abnormal earnings, book value, accruals and cash flows over a period of time and their valuation relevance in Indian scenario.
Design/methodology/approach
The study utilizes the generalized version of the Ohlson model which links market prices with abnormal earnings, book value and earning components (accruals and cash flows). Fixed-effect panel data regression is used to analyze six years of data on the sample units to determine the persistence and valuation relevance.
Findings
The findings provide evidence on the construct of persistence and value relevance of earnings and book value of equity in the Indian context. The findings further confirm that investors in India are fixated on earnings and fail to attend separately to the cash flow and accrual components of earnings while undertaking their investment decisions.
Practical implications
The empirical findings of the study will enable the analysts and investors to understand the relevance and persistence of accounting variables in case of an emerging market like India.
Originality/value
The study extends the extant literature on value relevance studies in developed markets to an emerging market like India and enriches it in several ways.
Keywords
Citation
Dawar, V. (2014), "Earnings persistence and stock prices: empirical evidence from an emerging market", Journal of Financial Reporting and Accounting, Vol. 12 No. 2, pp. 117-134. https://doi.org/10.1108/JFRA-06-2013-0044
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited