Persistence of earnings and earnings components: Evidence from the emerging capital market of Egypt

Abstract

The persistence of earnings and earnings components has spawned a growing body of research in developed markets. However, little is empirically known about this fundamental issue in emerging markets. The purpose of the study is to examine the persistence of earnings in Egypt, an emerging capital market, and whether earnings persistence is more attributable to cash flow or accrual component of earnings. On the basis of a sample of Egyptian listed firms, the study finds that earnings of Egyptian firms are persistent, although the persistence parameters are less than those documented in developed markets. Consistent with prior research in developed markets, the findings suggest that persistence of earnings performance is attributed more to cash flow component than to accrual component of earnings. Also, the findings reveal that the persistence of accruals is affected by their reliability, where less reliable accrual components have lower persistence than more reliable accrual components.