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The aim of this paper is to examine the relevance of financial reporting. In order to achieve this, a model that includes specific ratios is developed, which have proved to be indicators of falsified financial statements in the Greek capital market, and by estimating accruals quality, measured both by discretionary and non‐discretionary accruals.

The data were collected from a sample of 101 non‐financial firms listed at the Athens stock exchange. The time frame spans from 1995 to 2004 and the methodology used was OLS regression models.

The results indicate that the ratios of working capital to total assets and net profit to sales have a negative impact on stock returns, while the ratios of net profit to total assets and sales to total assets affect returns positively. Additionally, both types of accruals have incremental importance – with the non‐discretionary appearing to be more important compared to the discretionary one – in explaining stock return movements. Thus, it is concluded that the Greek stock market depicts prices accruals.

The present study adds to the existing literature by examining the issue of financial reporting relevance within the context of an emerging capital market such as Greece. This is believed to be the first study which considers the aforementioned issues in the Greek accounting setting.

Using various proxies for the firms' return on equity (ROE) and retention ratios (b) the authors calculate 36 sustainable growth rates, on a rolling basis, for a comprehensive set of firms over a 52-year period. The authors then assess the ability of these different sustainable growth rates to predict the actual, out-of-sample, five-year growth rates of the firms' earnings.

The authors compare the forecast to determine which method of estimating ROE and b produce the lowest mean-squared-errors and then determine the estimation method that works best for firms with different characteristics and for firms in different industries.

Overall, using the median ROE of all firms in the market and the 5-year average of the specific firm's retention ratio produces the lowest, statistically significant, forecast errors. Variations are documented based on firm characteristics, including dividend payout, level of ROE and industry.

The findings can guide practitioners in using the best earnings forecasting method.

Financial textbooks seem universally to suggest that one method of estimating the growth rate of a firm's earnings is to calculate the “sustainable growth rate” by multiplying the firm's ROE by the firm's b. At the same time, multiple methods of proxying for both ROE and b have been suggested; therefore, it is an interesting and useful empirical question, which, heretofore, has not been addressed in the literature, as to which estimation of the sustainable growth rate best approximates the actual future growth of the firm's earnings. The findings can guide practitioners in using the best earnings forecasting method.

The purpose of this paper is to examine the relationship between capital expenditures and corporate earnings for 357 manufacturing firms listed on the Taiwan Stock Exchange over the sample period 1992‐2002.

The sample period of 11 years is divided into capital investment period and performance period. The sample firms are first grouped into eight portfolios ranked by capital investment ratio estimated from the investment period. Corporate earnings in the performance period for the eight portfolios are examined to see if any positive association exists. Regressions are then estimated to test the relationship between capital expenditures and corporate earnings.

The results indicate a significantly positive association between capital expenditures and future corporate earnings even after controlling for current corporate earnings.

The results indicate that the unexpected announcements of capital expenditures are good news for investors in the investment practice.

Previous studies on the relationship between capital expenditures and corporate earnings are based mainly on developed countries. Empirical evidence from the manufacturing firms listed on the Taiwan Stock Exchange would provide further insights regarding this important issue.

This paper provides evidence that will help stock market participants interpret sell‐side analyst buy/sell recommendations. We examine whether recommendation levels (e.g. buy) correspond with traditional predictors of the underlying stock's performance, and whether recommendation revisions (e.g. an upgrade) are consistent with news analysts receive. Consistent with theory, we find that more optimistic recommendations are associated with higher mean forecast errors, forecast revisions, and forecasted earnings‐to‐price ratios. However, contrary to expectations, they also have higher market‐to‐book ratios, higher market values, and lower ratios of value to price (Lee et al. 1999). These results are probably driven by specific differences between buys and the less optimistic recommendations, as holds and sells are rarely distinguishable from each other. Our recommendation revision findings are consistent with our expectations. Upgrades have significantly larger earnings forecast errors, earnings forecast revisions, and unexpected earnings growth than do reiterations or downgrades.

This study examines, in a European context, whether a management-induced International Financial Reporting Standards (IFRS) accounting strategy is affected by national culture. It analyses the association between management's accounting strategy and Hofstede's cultural dimensions of individualism and uncertainty avoidance, as well as institutional and firm-specific factors.

Using hand-collected accounting decisions from 301 annual reports of firms from 14 European countries in 2017, a model is developed to identify two ordinally scaled accounting strategy variables, each representing the aggregated effect of the decisions on earnings and equity ratio. Afterwards, the effect of the cultural dimensions on these accounting-strategy variables is analysed by an ordered logistic regression.

The results do not support an association between management's accounting strategy and national culture, complementing the previous critical literature on values-based theories of culture. However, there is evidence that national legal enforcement, disclosure requirements and firm size explain differences in management's accounting strategy across countries.

Using the cultural value dimensions of the Global Leadership and Organizational Behavior Effectiveness (GLOBE) project, the findings are robust and stable. However, the study is limited to a European data set and the sample year.

This study contributes to the discussion on the transparency and comparability of IFRS accounting. The results imply that these issues are not affected by cultural differences but rather by differences in institutional and firm-specific factors. In order to bring about improvements, regulators should establish a uniform institutional setting, while the standard setter should reduce the number of implicit and explicit accounting choices embodied in the IFRS.

The paper advances the understanding of cultural influences on management's IFRS accounting behaviour by providing an alternative to the existing accruals approach.

Variations in price/earnings (P/E) ratios are explained in a rational expectations framework by a number of fundamental factors, such as differences in growth expectations and risk. The purpose of this paper is to use a regression model and data from four sample periods (1996, 2000, 2001, and 2008) to separate the earnings/price (E/P) ratio into two parts – the portion of E/P that is related to fundamental determinants and a residual portion that cannot be explained by fundamentals. The authors use the residual portion as an indicator of over or undervaluation; a large negative residual is consistent with overvaluation while a large positive residual implies undervaluation. The authors find that stocks with larger negative residuals are associated with lower subsequent returns and reward-to-risk ratio, while stocks with larger positive residuals are associated with higher subsequent returns and reward-to-risk ratio. This pattern persists for both one and two-year holding periods.

This study uses a regression methodology to decompose E/P into two parts – the portion of E/P than is related to fundamental determinants and a residual portion that cannot be explained by fundamentals. Focussing on the second portion allows us to isolate a potential indicator of stock over or undervaluation. Using a sample of stocks from four time periods (1996, 2000, 2001, and 2008, the authors calculate the residuals from a regression model of the fundamental determinants of cross-sectional variation in E/P. These residuals are then ranked and used to divide the stock sample into deciles, with the first decile containing the stocks with the highest negative residuals (indicating overvaluation) and the tenth decile containing stocks with the highest positive residuals (indicating undervaluation). Total returns for subsequent one and two-year holding periods are then calculated for each decile portfolio.

The authors find that high positive residual stocks substantially outperform high negative residual stocks. This is true even after risk adjustments to the portfolio returns. The residual E/P appears to accurately predict relative stock performance with a relatively high degree of accuracy.

The findings of this paper provide some important implications for practitioners and investors, particularly for the stock selection, fund allocations, and portfolio strategies. Practitioners can still rely on a valuation measure such as E/P as a useful tool for making successful investment decisions and enhance portfolio performance. Investors can earn abnormal returns by allocating more weights on stocks with high E/P multiples. Portfolios of high E/P multiples or undervalued stocks are found to enjoy higher risk-adjusted returns after controlling for the fundamental factors. The most beneficial performance holding period return will be for a relatively short period of time ranging from one to two years. Relying on the E/P valuation ratios for a long-term investment may add little value.

Practitioners and academics have long relied on the P/E ratio as an indicator of relative overvaluation. An increase in the absolute value of P/E, however, does not always indicate overvaluation. Instead, a high P/E ratio can simply reflect changes in the fundamental factors that affect P/E. The authors find that stocks with larger negative residuals are associated with lower subsequent returns and coefficients of variation, while stocks with larger positive residuals are associated with higher subsequent returns and coefficients of variation. This pattern persists for both one and two-year holding periods.

The P/E ratio is widely used, particularly by practitioners, as a measure of relative stock valuation. The ratio has been used in both cross-sectional and time series comparisons as a metric for determining whether stocks are under or overvalued. An increase in the absolute value of P/E, however, does not always indicate overvaluation. Instead, a high P/E ratio can simply reflect changes in the fundamental factors that affect P/E. If interest rates are relatively low, for example, the time series P/E should be correspondingly higher. Similarly, if the risk of a stock is low, that stock’s P/E ratio should be higher than the P/E ratios of less risky stocks. The authors examine the cross-sectional behavior of the P/E (the authors actually use the E/P ratio for reasons explained below) after controlling for factors that are likely to fundamentally affect this ratio. These factors include the dividend payout ratio, risk measures, growth measures, and factors such as size and book to market that have been identified by Fama and French (1993) and others as important in explaining the cross-sectional variation in common stock returns. To control for changes in these primary determinants of E/P, the authors use a simple regression model. The residuals from this model represent the unexplained cross-sectional variation in E/P. The authors argue that this unexplained variation is a more reliable indicator than the raw E/P ratio of the relative under or overvaluation of stocks.

Purpose – Since the 1960s, the affluent democracies have experienced substantial changes in earnings inequality at the same time as heightening economic globalization. This paper investigates the relationship between these two processes.

Methodology/Approach – I use fixed-effects models, and comprehensive measures of globalization and earnings inequality to scrutinize the relationship between the two in 18 affluent democracies. Although past studies concentrate on worker displacement, I examine how globalization affected earnings inequality before and after controlling for manufacturing employment and unemployment as indicators of displacement.

Findings – Initial evidence suggests net migration and investment openness have moderate positive effects, but trade openness has larger, more significant positive effects. In full models, only trade openness remains robustly significant. For a standard deviation increase in trade openness, earnings inequality should increase by between 1/5th and 2/5th of a standard deviation.

Originality/Value of paper – Beyond displacement, this study encourages investigation of power relations (e.g., class capacities of employers vs. workers) and institutional change (e.g., practices of firms) as mechanisms by which globalization contributes to inequality.

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.

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.

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.

The findings of the study might be of interest to academicians and practitioners.

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.

This paper aims to examine the conditional and nonlinear relationship between price-earnings (P/E) ratio and payout ratio. A common finding of previous studies using linear regression model is that the P/E ratio is positively related to the dividend payout ratio. However, none of them investigates the condition under which the positive relationship holds.

This paper uses the fixed effects model to investigate the conditional and nonlinear relationship between P/E ratio and payout ratio. With the inclusion of fundamental factors and investor sentiment, this model allows for nonlinear relationship to be conditioned on the return on equity and the required rate of return.

Based on the annual data of industries in the USA over the period of 1998-2014, this paper produces new evidence indicating that when the return on equity is greater (less) than the required rate of return, the P/E ratio and dividend payout ratio exhibit a negative (positive) relationship and positive (negative) convexity.

Due to the curvature relationship between P/E ratio and payout ratio, the corporate managers and stock investors should pay more attention to the reduction in payout ratio than the rising payout ratio and the companies with low payout ratios than the companies with high payout ratios.

No previous study has tackled the issue of conditional and nonlinear relationship between P/E ratio and payout ratio. This paper attempts to fill the gap by allowing for nonlinear relationship conditional on the relative values of the return on equity and the required rate of return.

Purpose – David Gordon (1996) contended that the size of the managerial/administrative class has expanded in recent decades and that this has contributed to growing earnings inequality. This argument, however, has received insufficient attention despite its potential to explain some of the growth of earnings inequality in recent decades. We assess whether managerial intensity contributes to earnings inequality in affluent democracies, and thus evaluate his argument and extend it with a comparative perspective.

Methodology/approach – Our analyses are based on panel analyses of 17 affluent democracies from 1973 to 2004. Utilizing random- and fixed-effects models, we include three different measures of earnings inequality and an original measure of managerial intensity.

Findings: We show that managerial intensity is positively associated with all three measures of earnings inequality in random-effects models. As well, managerial intensity is positively associated with earnings inequality in the fixed-effects models for the 90/50 ratio of earnings inequality, but is not significant for the other two measures.

Originality/value – This study provides one of the few tests of Gordon's argument. We demonstrate that growing managerial intensity has contributed to rising earnings inequality in affluent democracies. In contrast to previous research, we argue that much of the rise of earnings inequality is due to political/institutional factors rather than labor market and demographic change. One of the reasons for Europe's relatively lower level of and slower increase in earnings inequality is its lower managerial intensity.