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