Abstract
This paper tested the abnormal earnings persistence in the Jordanian context through Ohlson’s (1995) first Linear Information Dynamics (LID) Model using an unbalanced panel regression analysis for a sample of (840) public firms listed in the Amman Security Exchange during the period 2007 to 2011. The results showed a highly value relevance for the industrial, financial and services sectors indicated by the coefficient of the abnormal earnings persistence. The services sector had the highest value relevance. However, the industrial and the financial sectors were closed. Finally, the results for the detailed industry analysis of the sub-sectors had shown different values for the coefficient of the abnormal earnings persistence, and bank firms, printing & packaging firms, and the utilities & communication firms had the highest values for the coefficient of the abnormal earnings persistence.
Highlights
The periodical earnings of the firm represent a measure of its profitability, successful and performance
The regression results for the pooled sample presented in the first column of Table (3) confirm previous studies used Ohlson’s (1995) first Linear Information Dynamics Model
It is noted that the abnormal earnings persistence (ω11) of the pooled sample is high value relevant, and equal to 0.869 which means that there is high abnormal earnings persistence for the Jordanian public firms during the period of this study (2007-2011), and this high abnormal earnings persistence result might be caused by the unrecorded intangible assets which might be considered to be the major source of abnormal earnings of the firm and the persistence of these abnormal earnings during the future financial periods of the firm (Kohlbeck & Warfield, 2007)
Summary
The periodical earnings of the firm represent a measure of its profitability, successful and performance. Abnormal earnings represent the excess of these earnings over the required rate of return which is based on the book value of the firm. It is suggested that the unrecorded intangible assets (internally generated) might be the major source of abnormal earnings of the firm and the persistence of these abnormal earnings during the future financial periods of the firm (Kohlbeck & Warfield, 2007). Ohlson (1995) in his valuation model explains the persistence of abnormal earnings. The model suggested that firm value can be estimated through abnormal earnings and other information through the Linear Information Dynamics (LID) which represents one of the premises on which this valuation model is based, and this Linear Information Dynamics (LID) establishes the relationships of abnormal earnings persistence in the time series of the accounting profits. The other information is any relevant information which is not captured by accounting information, and this relevant information will impact the future abnormal earnings (Ohlson, 1995)
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