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21 – 30 of over 20000Afroditi Papadaki and Georgia Siougle
This paper seeks to deal with the problem of the anomalous negative price‐earnings relation for firms listed in the Athens Stock Exchange (ASE).
Abstract
Purpose
This paper seeks to deal with the problem of the anomalous negative price‐earnings relation for firms listed in the Athens Stock Exchange (ASE).
Design/methodology/approach
The simple earnings capitalization model is employed to investigate the association between price and earnings across profit and loss firms listed in the ASE.
Findings
This study verifies a negative price‐earnings relation for those firms that report losses (loss firms) and a positive price‐earnings relation for those firms that report profits (profit firms).
Practical implications
Regarding the usefulness of financial information to investors, the security price‐earnings relation is proved not to be homogeneous across firms that report losses and firms that report profits.
Originality value
The paper provides evidence on the value relevance of publicly available information in a developing stock exchange which finally achieved its entrance to the world's developed markets.
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Jing Zhang, Guihua Lu and Baoliang Liu
According to the Chinese Stock Exchange rules, the listed companies’ management earnings forecasts (MEFs) are divided into mandatory and voluntary earnings forecasts. Different…
Abstract
Purpose
According to the Chinese Stock Exchange rules, the listed companies’ management earnings forecasts (MEFs) are divided into mandatory and voluntary earnings forecasts. Different information disclosure mechanisms may bring different economic consequences. Compared with the former, when, how frequently and what kind of voluntary earnings forecasts are disclosed almost entirely depends on the discretion of managers and the major shareholders[1]. The purpose of this paper is to examine whether listed companies’ voluntary earnings forecasts have self-benefited motives before the major shareholders’ selling of original non-tradable shares and how the capital market reacts in China.
Design/methodology/approach
This paper uses multiple regression analyses to examine the influence of the major shareholders’ non-tradable shares selling motives on MEFs’ type and frequency of A-share listed companies and makes robust tests using the difference in difference model (DID).
Findings
In the paper, it is found that before the major shareholders’ selling of original non-tradable shares, managers of listed companies are prone to release positive voluntary MEFs; during the shares reduction year of the major shareholders, the disclosure frequency of MEFs is much higher; these forecasts before the major stockholders’ selling have significant higher excess market returns. The evidence suggests that voluntary positive MEFs are for the major shareholders’ self-interested motive rather than for the open, fair and just disclosure purpose that damages the allocation efficiency of the capital market.
Originality/value
This paper enriches the understanding of voluntary MEFs’ incentives literature and provides scientific evidence to improve the supervision of information disclosure and insider trading in Chinese security market.
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Ali Ahmadi and Abdelfettah Bouri
As an increasing number of business organizations around the world are engaged in the value relevance of accounting information, this study aims to assess the field of the…
Abstract
Purpose
As an increasing number of business organizations around the world are engaged in the value relevance of accounting information, this study aims to assess the field of the accounting value relevance of book value and earnings in share prices of banks and financial institutions listed in the Tunisian stock exchange.
Design/methodology/approach
Using a sample of available banks and financial institutions listed in the Tunisian Stock Exchange from 2010 to 2015, this paper accommodates the documented accounting information in an emergent market context by using stock price of three months after year-end as a dependent variable. This study uses the panel regression technique on 24 banks and financial institutions during the study period.
Findings
The authors find that earnings and book value are statistically significantly associated with firm value. Also, using these variables together is positively related to the firm stock price share. Comparatively, these obtain evidence that book value is statistically more value-relevant than earning per share models; expectedly, the earnings explain a higher proportion of the stock price for the group of financial institutions than the group of banks.
Originality/value
A Web-based search is performed during the second quarter of 2016, locating the corporate websites of the sample firms, and the official site of the Datastream (worldscope) is identified. The sample period is 2010-2015 (144 firm-year observations).
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C.S. Agnes Cheng, Su‐Jane Hsieh and Yewmun Yip
The purpose of this paper is to examine whether the choice of accounting treatment of transition obligation under SFAS 106 affects the value of firms, and also whether the quality…
Abstract
Purpose
The purpose of this paper is to examine whether the choice of accounting treatment of transition obligation under SFAS 106 affects the value of firms, and also whether the quality of earnings is improved after the implementation of SFAS 106.
Design/methodology/approach
Different regression models were employed on a sample of 50 immediate recognition firms and 50 matched prospective recognition firms. Chow test is also used to investigate the quality of earnings before and after the implementation of SFAS 106.
Findings
In spite of the significant difference in impact on earnings from the choice of treatment of transition obligation, the accounting choice has no significant impact on the total value relevance of earnings and book value. When immediate recognition method is applied, investors ignore the one‐time charge of transition obligation, and rely more on book value in the valuation of a firm. However, when prospective recognition method is applied, both earnings and book value are value‐relevant in the adoption year and also in the subsequent year. In addition, the paper finds that the implementation of SFAS 106 improves the value relevance of earnings.
Research limitations/implications
Results are limited by the accuracy of the models used to measure value relevance of earnings and book value of equity.
Practical implications
Results may have implications for managers' choice of accounting treatment, and the evidence seems to support accrual basis over cash basis on earnings measurement.
Originality/value
The paper uses the value relevance approach to analyze the impact of SFAS 106 on the quality of earnings and book value of equity.
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The role of accounting information in setting security prices is one of the most fundamental issues in accounting and finance. The purpose of this study is to extend the research…
Abstract
The role of accounting information in setting security prices is one of the most fundamental issues in accounting and finance. The purpose of this study is to extend the research on the value relevance of accounting numbers in three important directions. Firstly, we consider the French context and analyze if earnings and/or cash flows are relevant to explain stock returns. Secondly, we test whether the explanatory power of accounting variables can be improved by using a nonlinear specification. Thirdly, we investigate how firm‐specific attributes such as size, debt level and firm life‐cycle influence the relative relevance of accounting measures (earnings and cash flows). Our results support a nonlinear relationship between stock returns and accounting variables. They indicate also that the relevance of earnings is conditional on size, debt level and life cycle of the firm. In contrast, the earnings change reveals more information when the firms are large, mature or characterized by a low degree of debt. These results are consistent with difference in earnings persistence between firms. With regards to cash flows, we find that they do not reveal additional information beyond that contained in earnings.
The purpose of this research is to identify the variables with an expected influence on dividend policy and on payout ratio in an emerging market.
Abstract
Purpose
The purpose of this research is to identify the variables with an expected influence on dividend policy and on payout ratio in an emerging market.
Design/methodology/approach
Based on the literature, eight hypotheses were developed and tested using 300 firms randomly selected from the Kuala Lumpur Stock Exchange. Additional statistical analyses were presented.
Findings
The results suggest that current dividends are affected by their pasts and their future prospects. To a lesser extent dividends were associated with net earnings. Payout ratios (POR) were not found to have a strong effect on the company's future earning growth, but had some significant negative correlation with the company's leverage. Cash per share and share book value significantly and positively affect both DPS and POR.
Practical implications
The findings of the study might be of interest to academicians and practitioners.
Originality/value
This paper explores the dividend policy and the payout ratio of listed companies in a fast‐growing market that has received inadequate research attention. The paper thus adds to the body of accounting knowledge.
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Omar Esqueda and Thomas O'Connor
The authors measure the cost of equity to earnings yield differential for a sample of 2,035 non-financial firms. In a series of Logit and Tobit regressions, the authors examine if…
Abstract
Purpose
The authors measure the cost of equity to earnings yield differential for a sample of 2,035 non-financial firms. In a series of Logit and Tobit regressions, the authors examine if the cost of equity to earnings yield differential is related to dividend policy in the manner predicted by agency theory.
Design/methodology/approach
Agency theory says a firm's optimal dividend policy is partially determined by the relationship between the earnings yield and the cost of equity capital. When the cost of equity is higher (lower) than the earnings yield, firms are motivated to (not) pay dividends as this reduces the cost of capital and holding other things constant, increases corporate valuations. The authors test whether managers set dividend policies to maximize the value of the firm.
Findings
The study’s findings show that when the cost of equity is higher (lower) than earnings yield, firms are more (less) likely to be dividend payers and the payouts are higher (lower). The results are robust to the inclusion of share repurchases as an alternative to cash distributions. The study’s findings support the cost of equity hypothesis and are consistent with alternative dividend theories.
Originality/value
The study’s findings support the cost of equity hypothesis and are consistent with alternative dividend theories. To the authors’ knowledge, this is the first paper testing the cost of equity hypothesis.
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John E. McEnroe and Mark Sullivan
This paper aims to investigate the empirical effects of an inconsistency in the calculation of the diluted earnings per share (EPS) number which originated in Accounting…
Abstract
Purpose
This paper aims to investigate the empirical effects of an inconsistency in the calculation of the diluted earnings per share (EPS) number which originated in Accounting Principles Board Opinion No. 15 (APB 15) and continues in Statement of Financial Accounting Standard No. 128 (SFAS 128), EPS. The discrepancy involves the treatment of dilutive warrants and options versus other dilutive convertible securities and is explained in the section of this paper where the authors describe the proposed alternative EPS model. In a sample of 55 publicly traded companies in which they applied their model, it was found that the average increase in diluted EPS to be 5.7 per cent and the median increase to be 3.8 per cent. The authors believe that SFAS 128 should be considered, along with other factors, to be revised to direct that diluted EPS be computed in accordance with their model.
Design/methodology/approach
The authors selected a sample of companies from the Compustat Annual Database that had either Convertible Debt or Convertible Stock or both with a year-end between July 1, 2011 and July 1, 2012 which was the most recent data available at the time of the initial study. They then used the model assuming a “repurchase” of common shares as if the “treasury stock method” which applies to options and warrants also applied to these conversions. They then reduced the number of shares initially used to compute diluted EPS by the number of assumed repurchased shares. Using the revised number of shares, the authors recomputed diluted EPS as a percentage of the originally reported diluted EPS.
Findings
For the 55 companies in the sample, the average increase in diluted EPS using the “treasury stock method” was 5.7 per cent. The median increase was 3.8 per cent. The largest increase was 26.6 per cent and the smallest was 0 per cent.
Research limitations/implications
This is a one-year study of the sampled firms. A multi-year sample is recommended for further research. Also, the sample might be applied to foreign entities under the jurisdiction of IAS 33.
Practical implications
According to the Financial Accounting Standards Board (FASB) the price-earnings ratio of an equity is perhaps the most frequently cited statistic in the business of equity investments. As the denominator in the price-earnings ration is the “diluted” EPS figure calculated under generally accepted accounting principles (GAAP) under Statement of Financial Accounting No. 128 (SFAS 128), the results have very significant implications for the recommended study and revision of the diluted EPS statistic.
Social implications
If the current diluted EPS reported numbers result in lower stock prices than would otherwise be the case under the authors’ model, then it seems likely that these companies with large amounts of debt would have a higher cost of equity capital than would otherwise be the case. The overall result would be a different allocation of equity capital than would be the case if convertible debt and convertible equity were treated the same way as options and warrants. As we are unaware of a rationale for the disparate treatment, it is believed that this a is a misallocation caused by a statement of the Financial Accounting Standards Board (FASB) that seems flawed and recommend that it be considered to be revised.
Originality/value
A review of the literature found no other study addressing this issue.
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William S. Hopwood and James C. McKeown
This study investigates the time‐series properties of operating cash flows per share and earnings per share for all manufacturing firms on the Compustat Quarterly Industrial tape…
Abstract
This study investigates the time‐series properties of operating cash flows per share and earnings per share for all manufacturing firms on the Compustat Quarterly Industrial tape for which sufficient data are available. Both individually‐identified and “premier” models are compared on the basis of their relative fit and forecasting accuracy. The empirical results suggest that for both accounting variables the individually‐identified models outperform the premier models, although this advantage is larger for earnings, and for forecast horizons beyond one quarter ahead. A major conclusion of the study is that the time‐series properties of cash flows are quite different than those of earnings. In particular, the cash flow series are considerably less predictable, as shown by their relatively high incidence of white‐noise series and relatively large forecast errors.
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