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Article
Publication date: 24 May 2011

Dennis Chambers and Jeff Payne

The purpose of this paper is two‐fold: first, to examine whether the quality of accruals, as measured by accrual persistence, improved in the post‐Sarbanes‐Oxley (SOX…

Abstract

Purpose

The purpose of this paper is two‐fold: first, to examine whether the quality of accruals, as measured by accrual persistence, improved in the post‐Sarbanes‐Oxley (SOX) period, and second, to examine the degree to which SOX‐related improvement in accrual persistence varies across companies depending on the degree of their auditor's independence.

Design/methodology/approach

The paper compares accrual persistence in the pre‐ and post‐SOX periods to test the first question. Then, partitioning on relative client importance as a measure of auditor independence, the paper compares the SOX‐based improvement for clients of low and high independence audit firms.

Findings

The study first demonstrates that accrual persistence increased significantly in the post‐SOX period. The study also finds evidence that in the post‐SOX period, the subsample of companies audited by Big‐N auditors with lower‐independence experienced the greatest improvement in accrual persistence.

Originality/value

This is the first paper to evaluate SOX‐related improvements in the quality of earnings as measured by accrual persistence. Prior studies test abnormal accruals and other earnings management metrics, however, persistence is a more general test of financial statement quality. This study also is the first to compare SOX‐related improvements for clients of firms with differing levels of independence.

Details

Managerial Auditing Journal, vol. 26 no. 5
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 1 March 2002

Ahmed Riahi‐Belkaoui and Fouad K. Alnajjar

Summarizes previous research on the links between multinationality and earnings persistence and presents a study which applies the autoregressive, integrated…

Abstract

Summarizes previous research on the links between multinationality and earnings persistence and presents a study which applies the autoregressive, integrated, moving‐average time series model to 1990‐1999 data on the largest US multinationals. Explains the methodology and presents the results, which show a negative relationship between the level of multinationality and earnings persistence measures. Puts this down to a negative link between multinationality and performance; and reduced risk through international diversification and profit stabilization.

Details

Managerial Finance, vol. 28 no. 3
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 12 December 2007

Patrick Kuok-Kun Chu

This chapter examines the performance persistence evidences of pension fund managers who managed the constituent equity funds included in Hong Kong Mandatory Provident…

Abstract

This chapter examines the performance persistence evidences of pension fund managers who managed the constituent equity funds included in Hong Kong Mandatory Provident Fund (MPF) schemes over the period 2001–2004. Nonparametric two-way contingency table and parametric OLS regression analysis are employed to evaluate performance persistence. The evidence suggests that the raw returns, traditional Jensen alphas, and conditional Jensen alphas in the previous year possess predictive abilities. When the funds are classified into high-volatile and low-volatile samples, the high-volatile funds are found to possess stronger performance persistence. Neither hot-hand nor cold-hand phenomena are found in the equity funds managed by same investment manager.

Details

Asia-Pacific Financial Markets: Integration, Innovation and Challenges
Type: Book
ISBN: 978-0-7623-1471-3

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Article
Publication date: 27 July 2012

Andrew Phiri

The purpose of this paper is to evaluate threshold effects in the persistence of South African aggregate inflation data.

Abstract

Purpose

The purpose of this paper is to evaluate threshold effects in the persistence of South African aggregate inflation data.

Design/methodology/approach

The conventional approach for assessing the degree of persistence within an inflation process is via its integration properties. This study makes use of univariate threshold autoregressive (TAR) models and associated unit root testing procedures to investigate the integration properties of the inflation data. Out‐of‐sample forecasts are further performed for the TAR models and their linear counterparts.

Findings

The empirical results confirm threshold effects in the persistence of all employed aggregated measures of inflation, whereas such asymmetric effects are ambiguous for disaggregated inflation measures. None of the observed series is found to be stationary in their levels. The out‐of‐sample forecasts for all TAR models outperform their linear counterparts.

Practical implications

Given the scope of the study, the empirical analysis provides insight with concern to the performance of inflation subsequent to the adoption of the inflation target regime in South Africa. Of particular interest are the low persistence levels observed at inflation rates of below 4.7 and 4.4 percent for core and CPI inflation, respectively, as both these aggregated measures of inflation play an essential role in guiding monetary policy conduct within the economy. The overall findings imply that on an aggregate level, the South African Reserve Bank's (SARB's) current inflation target of 3‐6 percent encompasses a non‐stationary inflation range and thus proves to be restrictive on monetary policy conduct.

Originality/value

The paper fills in an important gap in the academic literature by evaluating asymmetric effects in the integration properties of inflation, at both aggregated and disaggregated levels, for the exclusive case of South Africa.

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Article
Publication date: 3 April 2019

Fadillah Mansor, Naseem Al Rahahleh and M. Ishaq Bhatti

The purpose of this paper is to compare the return performance and persistence of ethical and conventional mutual funds during two extreme events, the Asian and the global…

Abstract

Purpose

The purpose of this paper is to compare the return performance and persistence of ethical and conventional mutual funds during two extreme events, the Asian and the global financial crises under Shariah constraints.

Design/methodology/approach

The overall sample comprises of 129 Islamic mutual funds (IMFs) and 350 conventional mutual funds (CMFs) in Malaysia, and the average monthly data cover two periods of market cycles, before and during a financial crisis. The net of all expenses data is obtained from the Morningstar Database. This study employs various market risk-adjusted performance measures (ratios) to estimate the funds’ overall performance during the crises, and then it uses CAPM model to estimate the parameters via panel data approach. Moreover, paper employs the two persistence performance measures on IMFs and CMFs through contingency tables. It tests for the performance persistence effects for IMFs, CMFs using repeat winner and the cross-product ratio (CPR) tests proposed by Malkiel (1995) and Brown and Goetzmann (1995), respectively.

Findings

The main findings of the paper are: on average, both funds IMF and the CMF outperform the market return during the entire sample period; none of the funds is better than the “others” during the financial crises and the pre-crisis periods; the ethical fund – IMF outperforms the CMF over the study period. This outcome also indicates that ethical funds are more persistent especially during and the pre-crisis AFC and the GFC periods.

Research limitations/implications

The finding of this study is limited to only Malaysian data because the objective was to guideline investors and market players in Malaysia to prefer investing in Islamic ethical funds to diversify their investment portfolio.

Practical implications

Cautions to use existing ratio measures and CAPM model rather persistence measures may be used with existing methodologies in light of extreme events which influenced investor decision making for better returns at lower risks.

Social implications

A class of ethical funds consists of religious sustainable, socially responsible and impact-investing (SRI) funds but Shariah implications of halal investment must be observed to avoid prohibited practices within the class of SRI funds.

Originality/value

The work done in this paper are original in the sense that the authors employed various ratios to measure fund performance in conjunction with CAPM model and then tested for two persistence performance measures; the repeat winner and CPR tests.

Details

International Journal of Managerial Finance, vol. 15 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 6 June 2016

Jorge Juliao-Rossi and Jana Schmutzler

The purpose of this paper is to test the existence of true persistence in the generation and adoption of product innovations in the context of a developing country.

Abstract

Purpose

The purpose of this paper is to test the existence of true persistence in the generation and adoption of product innovations in the context of a developing country.

Design/methodology/approach

A dynamic probit model with random effects is used to test true persistence relying on a panel data set constructed from three waves of the Colombian innovation survey (Encuesta de Desarrollo e Innvovación Tecnológica) covering the time span from 2003 to 2008.

Findings

This paper empirically shows the existence of true innovation persistence for two of the three types of product innovation studied: the adoption of product innovation that is new to the firm; and the adoption of product innovation that is new to the national market. However, the study could not confirm true persistence in the generation of product innovation.

Originality/value

To the best of our knowledge, this is the first study that systematically tests innovation persistence differentiating between the adoption of innovations that are new to the firm and innovation that is new to the national market. It is also the first study in this research area that uses a dynamic probit model with random effects according to the original specification by Wooldridge (2005).

Propósito

En este trabajo se prueba la existencia de verdadera persistencia en la generación y adopción de innovaciones de productos en el contexto de un país en desarrollo.

Diseño/metodología

Para probar la existencia de verdadera persistencia se estima un modelo probit dinámico con efectos aleatorios utilizando tres cohortes de la Encuesta de Desarrollo e Innvovación Tecnológica (EDIT) que cubren el periodo de tiempo 2003-2008.

Resultados

Este trabajo muestra empíricamente la existencia de verdadera persistencia en dos de los tres tipos de innovación de productos estudiados: en i) la adopción de innovación de productos nuevo para la empresa, y ii) la adopción de innovación de productos nuevo para el mercado nacional. Sin embargo, el estudio no pudo confirmar la verdadera persistencia en la generación de innovación de productos.

Originalidad

Este es el primer estudio que evalúa sistemáticamente la persistencia en la innovación diferenciando entre la adopción de innovaciones que son nuevas para la empresa de las que lo son para el mercado nacional. También es el primer estudio en esta área de investigación que utiliza un modelo probit dinámico con efectos aleatorios de acuerdo con la especificación original de Wooldridge (2005).

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Article
Publication date: 3 May 2016

Javad Izadi Zadeh Darjezi

Managers, investors and security analysts all pay special attention to the bottom line of income statements and they miss significant information included in accruals…

Abstract

Purpose

Managers, investors and security analysts all pay special attention to the bottom line of income statements and they miss significant information included in accruals about the quality of earnings. A considerable portion of the earnings-quality literature examines the possibility of using the accruals to shift reported income among fiscal periods. One of the main roles of working-capital accruals is to adjust the recognition of cash flows. This paper aims to focus on earnings quality by examining the working-capital accruals quality using the method of Dechow and Dichev (2002).

Design/methodology/approach

Following the Dechow and Dichev (2002) model, the result of this paper shows that accrual quality is related to the absolute magnitude of accruals negatively. Also, the standard deviation of accruals, cash flows, sales and earnings is positively related to firm size. The result demonstrates and suggests that these observable firm characteristics can be used as instruments for measuring accrual quality. According to this framework, the author expects that the larger the unsigned abnormal accrual measure, the lower the earnings quality. Therefore, firms with low accrual quality have more accruals that are unrelated to cash flow realisations and so have more noise and less persistence in their earnings.

Findings

After examining earnings and accrual quality, this paper finds that average UK company behaviour was quite similar to the behaviour found earlier in the USA. This paper’s findings show that greater volatility of sales, cash flow, accruals and earnings results in a lower accrual quality. Without a doubt, some of the analysis in this paper, especially that using different equations to calculate working-capital accruals, leads us to a valuable improvement of the earlier studies.

Originality/value

In this paper, the author follows the method of Dechow and Dichev (2002) and define accrual quality as the extent to which accruals map into cash-flow insights based on the UK data. To find the quality of working-capital accruals, the author uses the standard deviation of the residuals as accrual quality that resulted from the author’s firm-specific OLS regressions of working-capital accruals based on last, current and one-year-ahead operating cash flow. Unlike prior research, to avoid a restriction to working-capital accruals, we use different equations to cover more items of working-capital accruals.

Details

International Journal of Accounting & Information Management, vol. 24 no. 2
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 14 November 2016

Giorgio Canarella and Stephen M. Miller

The purpose of this paper is to report on a sequential three-stage analysis of inflation persistence using monthly data from 11 inflation targeting (IT) countries and, for…

Abstract

Purpose

The purpose of this paper is to report on a sequential three-stage analysis of inflation persistence using monthly data from 11 inflation targeting (IT) countries and, for comparison, the USA, a non-IT country with a history of credible monetary policy.

Design/methodology/approach

First, the authors estimate inflation persistence in a rolling-window fractional-integration setting using the semiparametric estimator suggested by Phillips (2007). Second, the authors use tests for unknown structural breaks as a means to identify effects of the regime switch and the global financial crisis on inflation persistence. The authors use the sequences of estimated persistence measures from the first stage as dependent variables in the Bai and Perron (2003) structural break tests. Finally, the authors reapply the Phillips (2007) estimator to the subsamples defined by the breaks.

Findings

Four countries (Canada, Iceland, Mexico, and South Korea) experience a structural break in inflation persistence that coincide with the implementation of the IT regime, and three IT countries (Sweden, Switzerland, and the UK), as well as the USA experience a structural break in inflation persistence that coincides with the global financial crisis.

Research limitations/implications

The authors find that in most cases the estimates of inflation persistence switch from mean-reversion nonstationarity to mean-reversion stationarity.

Practical implications

Monetary policy implications differ between pre- and post-global financial crisis.

Social implications

Global financial crisis affected the persistence of inflation rates.

Originality/value

First paper to consider the effect of the global financial crisis on inflation persistence.

Details

Journal of Economic Studies, vol. 43 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 7 September 2015

Robert Hogan and Jocelyn D. Evans

This paper aims to advance the literature by extending the empirical relation between a firm’s strategy and socially responsible value drivers (customer/employee…

Abstract

Purpose

This paper aims to advance the literature by extending the empirical relation between a firm’s strategy and socially responsible value drivers (customer/employee relations) beyond firm performance to the impact on earnings persistence. Although existing research demonstrates that management’s effective implementation of a specific strategic orientation such as cost focus or product differentiation leads to better financial performance, no studies, to the authors’ knowledge, directly address the effect of strategic orientation on the persistence of earnings.

Design/methodology/approach

This paper utilized the evaluation of a firm’s focus on employee and customer relations through the rating provided by Kinder, Lydenberg and Domini. It uses linear regression analysis to identify statistically significant relations.

Findings

The findings demonstrate that simply focusing on socially responsible employee and customer relations alone does not result in higher earnings persistence. But rather, higher earnings persistence is associated with firms whose strategic orientation is aligned with the firm’s socially responsible value drivers. Additionally, we find that the capital market understands the importance of alignment between a firm’s strategy and its value drivers.

Research limitations/implications

The analysis was based on a large-scale sample, and the authors concede that as a consequence of this decision, the results are based on indirect assessments of the firm’s actions rather than direct feedback from the firm. However, the authors believe the large-scale, external assessment that they use increases the generalizability of the results.

Practical implications

The results provide guidance to management and boards of directors regarding the critical nature of disclosure regarding firm strategy and corporate social responsibility (CSR) as well as inform financial statement users as to useful relations beyond the actual reported accounting numbers.

Originality/value

Existing research has explored the relation between CSR and improved financial performance, but no studies, to our knowledge, examine the relation a firm’s strategy and value drivers (customer/employee relations) has on earnings persistence. Earnings persistence is worthy of study, as it captures the non-transitory nature of earnings, which is a useful attribute for both internal and external users of financial reporting.

Details

Sustainability Accounting, Management and Policy Journal, vol. 6 no. 3
Type: Research Article
ISSN: 2040-8021

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Article
Publication date: 30 September 2014

Daniel Ames, Chris S. Hines and Jomo Sankara

The purpose of this paper is to examine whether earnings quality attributes are reflected in AM best's financial strength ratings (FSRs), a measure widely used in the…

Abstract

Purpose

The purpose of this paper is to examine whether earnings quality attributes are reflected in AM best's financial strength ratings (FSRs), a measure widely used in the insurance industry to assess financial health.

Design/methodology/approach

Using a sample of insurance companies during the period 2006-2012, the authors measure the quality of reported earnings using three accounting-based measures: earnings persistence, accrual quality, and earnings smoothness.

Findings

The authors find that better earnings persistence, higher accrual quality, and less earnings smoothing are reflected in higher FSRs for both public and private insurers, with the magnitude of the effect greater for private insurers.

Originality/value

This is the first study of which the authors are aware that seeks to understand the impact, if any, of variations in the quality of reported financial information on the perceived financial health of firms by ratings agencies in the insurance industry. The authors also include a novel research design in assessing the determinants of financial health ratings. Users of FSRs should be aware of the impact of ownership structure on ratings agencies’ propensity to incorporate reported earnings attributes in their ratings.

Details

American Journal of Business, vol. 29 no. 3/4
Type: Research Article
ISSN: 1935-5181

Keywords

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