scholarly journals THE RECENCY EFFECT OF ACCOUNTING INFORMATION

2012 ◽  
Vol 6 (1) ◽  
pp. 85 ◽  
Author(s):  
Jogiyanto Hartono
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Recency Effect ◽  
Joint Effects ◽  
Announcement Effects ◽  
Earnings Information ◽  
Earnings Surprises ◽  
Belief Adjustment ◽  
Effect Hypothesis ◽  
With Memory

This study tests the joint effects of dividend and earnings information. A study of joint effects is justified for the following reasons. First, dividends and earnings are considered two of the most important signaling devices (Aharony and Swary 1980) that investors use in evaluating stock prices. Second, dividends and earnings are 'garbled' information (Ohlson 1989). Dividends and earnings may contain corroborating or disconfirming news. Third, investors may be have with memory, revising beliefs in complex ways in evaluating a sequence of information. Prior dividend studies that controlling for earnings announcement effects do not address these possibilities. Using Hogarth and Einhorn's (1992) belief-adjustment theory, this study models the behavior of investor reactions to joint dividend and earnings surprises. The theory predicts that order and timing of dividend and earnings surprises have different effects on stock returns. When dividend and earnings surprises have opposite signs (mixedevidence), the theory predicts that later surprises have a larger impact on stock returns than do earlier surprises (the recency effect hypothesis). The evidence for the recency  effect hypotheses is relatively strong. In three out of four cases of mixed evidence (positive earnings, negative earnings and positive dividend surprises), the recency effect hypotheses are supported.

Herding on Earnings News: The Role of Institutional Investors in Post–Earnings-Announcement Drift

2017 ◽  
Vol 32 (4) ◽  
pp. 536-560 ◽  
Author(s):  
Linda H. Chen ◽  
Wei Huang ◽  
George J. Jiang
Keyword(s):  
Stock Returns ◽  
Institutional Investors ◽  
Stock Prices ◽  
Institutional Trading ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Gradual Process ◽  
Earnings Surprises ◽  
Institutional Herding

We examine the role of institutional investors underlying post–earnings-announcement drift (PEAD). Our results show that while institutional investors generally herd on earnings news, such correlated trading among institutions does not eliminate or reduce market underreaction to earnings surprises. Instead, PEAD is significant only in the subsample of stocks where institutions herd in the same direction as earnings surprises. In fact, institutional herding is also positively related to next-quarter earnings announcement returns. We provide evidence that institutional herding on or against earnings news is largely driven by firm characteristics, particularly past firm performance and stock returns. In addition, we find that relative to nontransient institutions, transient institutions have a stronger tendency to herd on earnings information. Finally, based on long-run stock returns, we show that when institutions herd on earnings surprises, institutional trading represents a gradual process of incorporating information into stock prices. However, when institutions herd against earnings surprises, institutional trading slows down stock price discovery.

scholarly journals Use Of Earnings Information For Stock Pricing In Different Market Cycles: The Effect Of Discretionary Accruals

2011 ◽  
Vol 7 (5) ◽  
Author(s):  
Alireza Daneshfar ◽  
Mohammad J. Saei
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Stock Prices ◽  
Discretionary Accruals ◽  
Ratio Analysis ◽  
Test Results ◽  
Font Size ◽  
True Nature ◽  
Earnings Information ◽  
Abnormal Stock Returns

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This study examines the association between stock prices and discretionary accruals in different stock market cycles and presents evidence about the discrepancy in prior research that investors were able to identify earnings management in some cases, but not in some other cases. We argue that investors&rsquo; reaction to the true nature of EPS changes may be different in different market cycles. We suggests that investors pay less attention to the nature of EPS changes in an optimistic cycle, and are more critical in neutral and pessimistic cycles. Therefore, investors are more likely to detect and count for any earnings management in a neutral or pessimistic cycle than in an optimistic cycle. Using the U.S. quarterly data from July 01, 1997 to June 29, 2001, three market cycles were identified: optimistic, neutral and pessimistic. The test results indicated that the association between discretionary accruals and abnormal stock returns were insignificant in the neutral market cycle, significant and positive in the optimistic cycle and significant and negative in the pessimistic cycle. These findings indicate that investors tend to ignore the income-increasing effect of discretionary accruals on EPS changes in an optimistic market. The finding suggests that a more delegate and technical analysis of EPS changes is required when earnings information is used for stock pricing. It also suggests that a consideration of market cycle effect on investors&rsquo; use of EPS could improve the earnings-based ratio analysis. The findings propose that researchers interested in investigating the association between stock prices and earnings management should control for the effect of the market cycle during which their samples are drawn. </span></span></p>

scholarly journals Volatilities of Book Income and Taxable Income and Their Risk Relevance

2018 ◽  
Vol 7 (11) ◽  
pp. 212
Author(s):  
Joonhyun Kim
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Risk Measure ◽  
Financial Accounting ◽  
Firm Risk ◽  
Income Volatility ◽  
Earnings Volatility ◽  
Taxable Income ◽  
Earnings Information ◽  
Accounting Principle

This study investigates the volatility of book income and taxable income, and their relevance to stock returns variability. Book income is recognized under the financial accounting principle whereas taxable income is determined on the basis of legal right. Thus, the two types of earnings can provide different sets of information to investors. Particularly related to the role of earnings as a risk measure, this study shows that book income is more volatile than taxable income, which indicates that taxable income is relatively more consistent and predictable. Further, the volatility of book income is strongly positively related to stock return variability while the taxable income volatility is insignificantly associated with the stock returns volatility. Additional analysis shows that the earnings volatility is more closely linked to the systematic risk of stock prices than the idiosyncratic risk. In conclusion, this study suggests that book income and taxable income is mutually different in terms of earnings variability and its relevance to firm risk. The findings also indicate that those two sets of earnings information are complementary to each other and provides investors with useful information to assess underlying firm risk.

scholarly journals Regional Economic Activity and Stock Returns

2018 ◽  
Vol 54 (3) ◽  
pp. 1051-1082 ◽  
Author(s):  
Esad Smajlbegovic
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Economic Activity ◽  
Cash Flows ◽  
Annual Reports ◽  
Cross Sectional ◽  
Macroeconomic Information ◽  
Earnings Surprises ◽  
Future Cash Flows ◽  
A Company

This paper studies the diffusion of regional macroeconomic information into stock prices. I identify all U.S. states that are economically relevant for a company through textual analysis of annual reports and find that economic activity forecasts of company-relevant regions positively predict cross-sectional stock returns. Information arising from all relevant states is more important than that relating to the headquarter state alone. These forecasts also predict firms’ performance and earnings surprises, suggesting that the return predictability stems from future cash flows that are gradually reflected in prices. Finally, regional information takes longer to be incorporated into prices among difficult-to-arbitrage stocks.

Earnings Informativeness and Strategic Disclosure: An Empirical Examination of “Pro Forma” Earnings

2004 ◽  
Vol 79 (3) ◽  
pp. 769-795 ◽  
Author(s):  
Barbara A. Lougee ◽  
Carol A. Marquardt
Keyword(s):  
Market Efficiency ◽  
Predictive Ability ◽  
Press Releases ◽  
Empirical Examination ◽  
Strategic Disclosure ◽  
Earnings Information ◽  
Pro Forma Earnings ◽  
Earnings Informativeness ◽  
Earnings Surprises ◽  
Pro Forma

This paper provides evidence on the characteristics of firms that include “pro forma” earnings information in their press releases, whether the usefulness of pro forma earnings to investors varies systematically with these characteristics, and whether the investor response to pro forma earnings is consistent with market efficiency or mispricing. Using a sample of 249 press releases from 1997–99, we find that firms with low GAAP earnings informativeness are more likely to disclose pro forma earnings than other firms. We also find that strategic considerations, measured using the direction of GAAP earnings surprises, are an important determinant of pro forma reporting. In addition, our examination of the relative and incremental information content of pro forma earnings shows that investors find pro forma earnings to be more useful when GAAP earnings informativeness is low or when strategic considerations are absent. Tests of the predictive ability of pro forma earnings for future profitability and returns are mixed, and we therefore cannot conclusively determine whether the investor reaction to pro forma earnings at the time of the press release is consistent with market efficiency or mispricing. The paper contributes to the growing literature on pro forma earnings and more generally to the literature on voluntary and strategic disclosure.

Research of Building Intelligent Investment Decision Mode for Investment Portfolio — Using Taiwan Electronic Stock as an Example

2010 ◽  
Vol 13 (04) ◽  
pp. 621-645 ◽  
Author(s):  
Wen-Rong Jerry Ho ◽  
C. H. Liu ◽  
H. W. Chen
Keyword(s):  
Stock Returns ◽  
Stock Prices ◽  
Stock Exchange ◽  
Investment Decision ◽  
Investment Strategy ◽  
Return Rate ◽  
Selection Strategy ◽  
Stock Selection ◽  
Taiwan Stock Exchange ◽  
Book To Market Ratio

This research uses all of the listed electronic stocks in the Taiwan Stock Exchange as a sample to test the performance of the return rate of stock prices. In addition, this research compares it with the electronic stock returns. The empirical result shows that no matter which kind of stock selection strategy we choose, a majority of the return rate is higher than that of the electronics index. Evident in the results, the predicted effect of BPNN is better than that of the general average decentralized investment strategy. Furthermore, the low price-to-earning ratio and the low book-to-market ratio have a significant long-term influence.

Studying the Effect of Changing the Managing Director on the Abnormal Returns of Shares of Companies Listed on the Iraqi Stock Exchange

2021 ◽  
Vol 39 (11) ◽  
Author(s):  
Hussein Hasan ◽  
Hudaa Nadhim Khalbas ◽  
Farqad Mohammed Bakr AL Saadi
Keyword(s):  
Stock Returns ◽  
Significant Relationship ◽  
Stock Prices ◽  
Market Reaction ◽  
Stock Exchange ◽  
Hypothesis Test ◽  
Abnormal Returns ◽  
The Other ◽  
Other Hand ◽  
Abnormal Stock Returns

The aim of this research is to study the market reaction to the change of the managing director and how this change affects the abnormal returns of the shares. The research is based on the information published by the companies listed on the Iraq Stock Exchange, and 35 companies were selected for the period from 2015 to 2019. The results of the hypothesis test for this study show that there is a negative and significant relationship between the change of the managing director and abnormal stock returns. On the other hand, investors undervalue stock prices when changing CEOs. As a result, the stock returns are less than expected.

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