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Forecasting future period profitability is widely identified as an aim of financial statement analysis, and these forecasts are typically relied upon for the estimation of firm value. To facilitate this, the decomposition of earnings into its components or drivers, is typically advocated. This paper investigates the existence of systematic differences in persistence across the components of earnings. If components of earnings experience differences in persistence, this may provide insights into the determinants of aggregate earnings level and persistence. This paper provides evidence of differences in persistence between components of earnings. Differences are found between components formed on the basis of: financial ratios; operating and financing activities; and cash and accruals. Furthermore, there is evidence that earnings components improve the explanatory power of models evaluating aggregate earnings persistence, with this result being strongest for firms with extreme income decreasing accruals. Due to the pivotal role of earnings in firm valuation, the results from this paper have direct implications for valuation.

Can an estimate of the intergenerational elasticity (IGE) be interpreted as a measure of inequality of opportunity (IOp)? If parental income is the only childhood circumstance, then the answer is yes. However, parental income is one of many potential circumstances that can shape IOp. These circumstances can influence the offspring’s income indirectly – by influencing parental income – or directly, bypassing the IGE altogether. I develop a model to decompose the interaction between childhood circumstances, parental income and offspring income. Using the Panel Study of Income Dynamics for the United States, I find that childhood circumstances account for 55% of the IGE for individual earnings and 53% for family income, with parental education explaining over a third of those shares. Furthermore, the IGE misses a large part of the influence of circumstances: only 45% of the influence of parental education on the offspring’s income goes through parental income (36% for earnings).

The purpose of this paper is to examine the dynamic relationships among investment, earnings and dividends for US firms. The sample period is 1950-2006.

The authors use a firm-level vector auto-regression (VAR) framework to examine the firm-level dynamics among investment, earnings and dividends. The firm-level VAR yields Granger causality results, impulse response functions, and variance decompositions characterizing the dynamics of these three variables at the firm level.

For the average firm in the sample, Miller and Modigliani dividend policy irrelevance is not supported, even in the long run; the shocks to dividends do have long-run consequences for investment and vice versa. Dividend changes are an ineffective signal of future earnings in both the short and long-term. The cost of an increased dividend is on average an immediate decrease of $3 in investment for every dollar increase in dividends and the effect is persistent up to six years after the increase in dividends.

The firm-level VAR used in the study requires that sample firms have long histories of investment, earnings and dividend data. The study addresses the interaction between dividends and investment and therefore necessitates examining dividend-paying firms. By the nature of the research question, the sample firms will not be representative in all respects to the universe of firms. The most striking difference between the sample and the universe of firms is firm size. As such, the study's conclusions are most applicable to larger, stable, dividend-paying firms. The study is also limited to dividend payout. Alternative payout policies, such as share repurchases, are not considered in this work.

In theory, increases in dividends can signal higher future earnings; however, the evidence does not support this hypothesis. When capital markets are constrained or incomplete, increases in dividends come at a cost to investment. Firms should consider alternative methods of signaling future earnings that have less of an impact on investment. Investors should carefully evaluate the possible impact of an increase in dividends on investment and future earnings growth.

This study is the first to examine the dynamics of earnings, dividends and investment at a firm level and over such a long sample period. By including the dynamics of earnings, the authors emphasize the potential opportunity costs that increasing dividends has on investment when capital markets are imperfect. The dynamic system also allows the authors to consider long-run effects as well as immediate responses to system shocks.

The purpose of this paper is to examine the effects of changes in the relative composition and in the segmentation between formal and informal labour on earnings differentials among women over the last decade in Brazil.

The authors follow Machado and Mata’s method to decompose the changes along the earnings distribution, with correction for sample selection and using microdata from the Demographic Census of 2000 and 2010. Informal labour was divided into informal salaried labour and self-employment, and both groups were compared with the formal labour separately.

The results indicate that, in both cases, an increase in earnings differentials in the bottom of the earnings distribution due to segmentation, suggesting that the returns to formal labour have grown relatively to informal labour during the period. On the other hand, earnings differentials decrease as one moves up the earnings distribution due to the composition effect, which is stronger on the top of the distribution relatively to the bottom. Furthermore, there are compensating differentials for self-employed women above the 30th quantile, which contributed to reduce the inequality between this group and formal workers.

The paper contributes to a better understanding of the changes taking place in female labour, shedding some light on how they affect different points along the earnings distribution. Furthermore, the adopted approach proposes a new application for the correction of sample bias in the context of quantile regression by employing a logit multinomial, and using the Demographic Census data.

This paper investigates the functional relationships between stock returns and two representative performance measures. The two measures are earnings and cash from operations. In addition, this paper assesses the association of stock returns with the decomposed components of earnings. Our study documents that earnings dominate cash from operations in terms of the relationships with the stock returns. When the stock returns are regressed on the decomposed components of earnings, cash from operations consistently shows strong positive relationships with stock returns. The efficient capital market hypothesis posits that changes in reported earnings without cash flow implications should not affect stock prices. However, our regression results indicate that non‐current accruals have strong relationships with the stock returns even though they lack cash flow implications. Perhaps this may imply that cosmetic earnings increases might be rewarded with increases in stock prices.

This paper aims to explore an extensive set of determinants of earnings and to offer recent empirical evidence of their effects on gender and racial earnings gaps.

Most previous studies looked at gender and racial comparisons independently of each other. This study extends previous studies by considering the interaction between gender and race. Using administrative data from a large Canadian firm, this paper explores the determinants of earnings based on a standard human capital model, comparing the earnings of white females, minority males and minority females with their white male counterparts. Both the dummy variable approach and a decomposition analysis are employed.

The results show that ranking in the organizational hierarchy accounts for most of the differences in gender and racial earnings, and ranking, together with human capital and job characteristics variables, explains over 90 percent of the earnings gap.

The analyses in the paper are based on data from a Canadian organization with nation‐wide operations. The findings may not apply to small or medium sized enterprises in Canada and in other non‐Western economies.

To eliminate the earnings gap, equal pay programs need to be supplemented by effective employers' programs and policies targeted at equal advancement opportunity.

The paper uses firm‐level data, which provides natural controls for variations across firms and allows for more in‐depth analysis of the impact of various factors on earnings differentials.

The study seeks to examine women’s participation in Ghana’s extractive growth-driven economy and the quality of this participation in terms of employment status and earnings relative to their male counterparts and establish whether these differences constitute discrimination for policy attention.

The study adopts both quantitative and qualitative methodological approaches to assess the extent of gender inequality in employment and earnings in the Ghanaian extractive sector and the sources of these differences. It computes three segregation indices to ascertain the degree of unequal gender distribution of employment based on nationally representative labour force and living standards surveys followed by quantitative analysis of gender earnings differences using Oaxaca–Blinder decomposition technique. This is complemented by the results of Focus Group Discussion to go behind the numbers and examine the sources of the employment and earnings differences between men and women in extractive activities.

The authors observe lower participation of women in the extractive sector, with a considerable degree of gender segregation and existence of gender earnings gap in favour of men due to differences in observable characteristics such as age, education and occupational skills. There is also evidence of existence of discrimination against women and indication of barriers that impede women’s involvement in high-earning extractive activities in Ghana. The study suggests measures to remove these barriers and improve women’s education particularly in science, technology, engineering and mathematics to address the gender imbalance in extractive activities in Ghana.

Women’s low involvement in the strong extractive growth-driven process has implication for undermining the effort of empowering women economically.

The study draws argument from the literature and adopts a combination of quantitative and qualitative techniques to establish gender in terms of employment distribution and earnings in favour of males in the Ghanaian extractive sector. This has the effect of undermining women’s economic empowerment and exacerbating gender inequality in the country.

Recent studies on the securities market's differential pricing of earnings components indicate that cash flows from operations are valued more highly than extreme total accruals. However, no previous study has examined whether cash flows from operations have a higher valuation than moderate total accruals. Therefore, this study examines the securities market's differential pricing of cash flows from operations and both moderate and extreme total accruals.

The study's sample is divided into two sub-samples: a moderate total accruals sub-sample; and an extreme total accruals sub-sample. To evaluate whether cash flows have a higher valuation when compared to total accruals, for the entire sample and for each of the two sub-samples, the study examines the statistical significance of the difference between slope coefficients of cash flows and total accruals for regression of returns on both unexpected cash flows from operations and unexpected total accruals.

Consistent with prior research, results from the entire sample show a differential higher valuation of cash flows when compared to total accruals. Another finding, consistent with recent studies, is that cash flows from operations have a higher valuation when compared to extreme total accruals. However, there is no higher differential valuation of cash flows over moderate total accruals. These findings support the decomposition of earnings into the components of cash flows from operations and total accruals only when total accruals are extreme (rather than moderate).

A possible explanation for these results is that since accruals predict cash flows, total accruals – when moderate (i.e. not extreme) – are priced similarly to cash flows. These results reveal that when total accruals are moderate, earnings are a better proxy for the underlying cash flows (over the entire future horizon, not just the current period) than is cash flows. However, since total accruals are unlikely to persist in a permanent way over the years, these results indicate that the decomposition of earnings into the components of cash flows from operations and total accruals is consistent with the information set used to value equity securities. Therefore, separate disclosure of cash flows is value relevant. In addition, users of financial statements certainly need the cash flows information as an ex-post validation of the prior earnings.

This study's contribution stems from its determination of the preferred level of disaggregation of earnings components (i.e. operating cash flows and total accruals). This is expected to help investors in their attempt to enhance the outcome of their informed investment and credit decisions.

The purpose of this paper is to examine the distributions of earnings and education in Portugal in the early years of European integration, 1985 and 1991, a period when Portugal experienced strong nominal convergence following EU accession.

The paper explores the information provided by relative distribution analysis and covariate (education) decomposition to study the dynamics of the earnings distribution since these methodologies allow for the identification of polarization patterns that might have occurred over the period. More standard methodological instruments are also used as a reference: cardinal measures of inequality and the Lorenz stochastic dominance approach.

The median and average earnings of employees increased and there was also a rise in earnings inequality. Relative to 1985, in 1991 there were more employees with very low earnings but also more 1991 employees with high earnings and there were also more employees at the bottom and top ends of the earnings distribution. The analysis of the relative earnings distribution by level of education reveals substantial differences for the top end of the distributions with the proportion of 1991 employees receiving the highest earnings higher than for the original 1985 cohort. A regional disaggregation confirms that the overall employees’ earnings and education distributions characteristics are determined by the behaviour of coastal regions, while in the non-coastal regions a lower level of inequality is associated with lower levels of median and average earnings and a different polarization pattern.

The paper shows that inequality is not a recent phenomenon in the Portuguese economy and thus might be one of the sources of the growth slowdown Portugal is experiencing since the turn of the century and might continue to hamper growth in the future deserving deeper investigation.

The purpose of this paper is to examine the informational content of retained and distributed earnings for future profitability and stock returns.

The paper utilizes firm‐level cross‐sectional persistent regressions, Mishkin's econometric framework and portfolio‐level analysis.

The paper shows that investors act as if the components of retained earnings (current operating accruals, non‐current operating accruals and retained cash flows) have similar implications for future profitability, leading to an overvaluation of their differential persistence. It also appears that while they cannot distinguish between the distinct properties of distributed earnings, they correctly anticipate the persistence of net cash distributions to debt holders (net debt repayment) but underestimate the persistence of net cash distributions to equity holders (dividends minus net stock issues). Overall, the findings of the paper suggest that the accrual anomaly documented in the accounting literature and the anomaly on net stock issues documented in the finance literature could be a subset of a larger anomaly on retained earnings.

The paper enhances one's understanding of the conflicting market's reaction to the accrual and cash flow component of earnings.