Earnings Persistence Research Articles

기본변수와 회계발생액의 미래이익에 대한 정보성

Purpose – This study investigates whether the future earnings predictability of the fundamental variables (AFS) is different from that of discretionary accruals. Given that AFS is the aggregate score index based on financially fundamental variables which predict the change in future earnings, AFS information is expected to be distinct from discretionary accruals which convey information on earnings persistence, but contain accruals estimation errors. Design/Methodology/Approach – This study uses AFS estimated using Penman and Zhang (2006) variables as the fundamental variable and discretionary accruals measurements according to Dechow et al. (1995) and Kothari et al. (2005). Frequency analysis and portfolio tests on firms listed in Korean stock exchanges (KSE) are conducted. Also, the hypothesis is verified by regression analysis with robust statistic test. Findings – The findings are as follows. First, AFS systematically mitigates the negative effect of discretionary accruals on future earnings increases. Additionally, AFS-based 12 month buy-hold returns are effective, but the discretionary accruals-based returns are not, in part. These results hold consistently on both the portfolio test and regression analyses. Research Implications – The results imply AFS contains information on future earnings increases independent of discretionary accruals. This study contributes to academic research by suggesting the future earnings predictability of accounting information based on financial statement analysis. Also, this study has practical implications in that two measures reflect the partially indifferent information of each other, and suggest an investment strategy exploiting ex-ante information.

The Effect of Audit fee , Good Corporate Governance , Managerial Ownership, Debt Level, Operational Cash Flow Volatility and Firm Size on Earnings Persistence

The Effect of Audit fee , Good Corporate Governance , Managerial Ownership, Debt Level, Operational Cash Flow Volatility and Firm Size on Earnings Persistence

Do Taxes Still Affect Earning Persistence?

While financial statements are the primary source of information about a firm, they tend to be under earnings management practices, namely to avoid paying tax. Therefore, we aim to examine whether taxes still affect earning persistence in an era of prevalent digital information. For that purpose, we use book–tax differences considering the deductible temporary differences and the taxable temporary differences. In addition, we analyze which of the two earnings components are more affected by taxes, specifically cash flow or accruals. We estimate econometric regressions using panel data to test our hypotheses. Through a sample of 421 small- and medium-sized (SME) Portuguese firms, between 2016 and 2020, we found empirical evidence that earning persistence tends to be lower when deductible temporary differences increase, while taxable temporary differences produce no statically significant effect. Furthermore, our results suggest that cash flow component increases more earning persistence than accruals. Therefore, deductible temporary difference may be an indicator of earnings management activities in these firms. These results are relevant, given the potential negative consequences of earnings management for the efficient decision making of stakeholders and even more because SMEs represent a substantial number of firms in European countries, particularly in Portugal.

Do the Levels of Environmental Sustainability Disclosure and Indebtness Affect the Quality of Earnings?

Previous research has found that, when firms engage in environmental sustainability practices, they tend to give a consistent signal to external stakeholders by acting in a more responsible, transparent, and ethical manner, and these firms tend to exhibit high earnings quality. However, other studies have found that those activities may mask a poor earnings quality. On the other hand, firms with high debt levels face constraints in raising funds. In this study, we expect these firms, when involved in environmental reporting practices, to reveal an increase in their earnings quality in order to improve their ability to capture financing. Thus, we analyze whether the level of environmental disclosure and a firm’s debt increase earnings quality. To analyze the former association, we develop an environmental sustainability reporting index (ESReporting), based on GRI standards, using the content analysis for Portuguese firms from 2016 to 2020. We use earnings persistence as a proxy for earnings quality because it is a fundamental characteristic to determine firm value. Regarding debt, we include a financial indicator to analyze its effect on earnings persistence. To test the hypotheses, we estimate a multiple linear regression, applying panel data. Our results suggest that ESReporting and debt tend to positively affect earnings persistence. In addition, our evidence suggests that ESReporting produces a higher positive impact then debt. These results show that ESReporting and debt may be used as regulating mechanisms of earnings management. Besides, this article brings some insights to the improvement of earnings quality resulting from a higher commitment to environmental disclosure and contributing to monitoring managers’ activities.

Income-Based Affirmative Action in College Admissions

Abstract We study whether college admissions should implement quotas for lower-income applicants. We develop an overlapping-generation model and calibrate it to data from Brazil, where such a policy is widely implemented. In our model, parents choose how much to invest in their child’s education, thereby increasing both human capital and likelihood of college admission. We find that, in the long run, the optimal income-based affirmative action increases welfare and aggregate output. It improves the pool of admitted students, but distorts pre-college educational investments. The welfare-maximising policy benefits lower- to middle-income applicants with income-based quotas, while higher-income applicants face fiercer competition in college admissions. The optimal policy reduces intergenerational persistence of earnings by 5.7% and makes nearly 80% of households better off.

FAKTOR-FAKTOR YANG MEMPENGARUHI PERSISTENSI LABA PADA PERUSAHAAN MANUFAKTUR

This study aims to prove the effect of operating cash flow, leverage, firm size, the composition of the board commissioners, and managerial ownership on earnings persistence in manufacturing sector companies listed on the Indonesia Stock Exchange for the 2018-2020 period. The sample selection technique used was purposive sampling and as many as 30 companies met the sample criteria. This study uses panel data that is processed using Eviews version 12.0 and Microsoft Excel 2016. The results of this study conclude that the leverage variable affects earnings persistence significantly negatively, while the operating cash flow, firm size, the composition of the board commissioners, and managerial ownership variables have no effect on earnings persistence. This study further implies that operating cash flow that can be used to predict earnings must be stable, and the separate variables of company size, board of commissioners composition, and managerial ownership are not necessarily indicators of earnings persistence because they are all fixed on the performance of the company itself.

Standard Error Biases When Using Generated Regressors in Accounting Research

ABSTRACTWe analyze the standard error bias associated with the use of generated regressors—independent variables generated from first‐step regressions—in accounting research settings. Under general conditions, generated regressors do not affect the consistency of coefficient estimates. However, commonly used generated regressors can cause standard errors to be understated. Problematic generated regressors include predicted values, coefficient estimates, and measures derived from these estimates. Widely used generated regressors in accounting include measures of earnings persistence, normal accruals, litigation risk, and conditional conservatism. Using simple regression models and simulation, we demonstrate how generated regressors can produce understated standard errors in accounting research settings. We also demonstrate how the magnitude of the standard error bias is inversely related to the precision of the generated regressor. Finally, we discuss bootstrapping as a correction for the bias and demonstrate the pairs cluster bootstrap as a tool to improve inferences in common accounting settings involving generated regressors.

Analysis of CSR Disclosure, Earnings Persistency, Earnings Growth, and Business Size on Earnings Management with Institutional Ownership as a Moderating Variable (Case Study on LQ45 Companies Listed on the Indonesia Stock Exchange (IDX) 2016-2020)

Due to a lack of development, Indonesia’s border areas are often undeveloped. This research aims to determine the impact of CSR disclosure, earnings persistence, earnings growth, and business size as factors influencing earnings management in LQ45 companies listed on the Indonesia Stock Exchange (IDX) between 2016 and 2020. Multiple linear regression with SPSS 25 was employed to analyze the data. The findings disclosed that CSR disclosure, earnings persistence, and business size all impacted earnings management. However, earnings growth did not affect earnings management. Testing with the moderating variable revealed that CSR disclosure and business size, moderated by institutional ownership, influenced earnings management. Moreover, earnings persistence and earnings growth variables, moderated by institutional ownership, did not affect earnings management.

Intergenerational earnings persistence and the provision of public goods: evidence from chile’s constitutional process

Intergenerational earnings persistence and the provision of public goods: evidence from chile’s constitutional process

PENGARUH UKURAN PERUSAHAAN, TINGKAT HUTANG, ARUS KAS OPERASI, AKRUAL TERHADAP PERSISTENSI LABA (Study Empiris Perusahaan Properti dan Real Estate Yang Terdaftar di Bursa Efek Indonesia Periode 2018-2020)

Financial statements can be used as information by investors in making investment decisions. In the financial statements there are profits that can determine performance, so a company must have earnings quality used to predict future earnings. 
 This research is a quantitative research. Collecting data in the form of secondary data, namely financial statements. The population of this study are 61 Property and Real Estate Companies Listed on the Indonesia Stock Exchange. Sampling using purposive sampling method, to obtain 20 companies in 3 years of observation as much as 60 data used by researchers. 
 Based on the results of the study, it shows that the size of the company and the level of debt have a partial effect on earnings persistence with a negative relationship with significant values ​​of 0.046 and 0.000. Besides, operating cash flow has a partial effect on earnings persistence with a positive direction with a significant value of 0.009 and accruals have no partial effect on earnings persistence with a positive direction relationship with a significant value of 0.207. Firm size, debt level, operating cash flow, accruals have a simultaneous effect on earnings persistence with a significant value of 0.000.

Share pledging and earnings informativeness

PurposeThe purpose of this paper is to investigate the effect of share pledging by controlling shareholders on earnings informativeness.Design/methodology/approachUsing a sample of 23,120 firm-year observations from 2003 to 2019 in China, this paper examines how share pledging by controlling shareholders affects earnings informativeness, measured by earnings persistence and earnings response coefficients.FindingsThis paper finds that share pledging by controlling shareholders makes earnings less informative. The adverse impacts are more pronounced when share pledging distorts incentives of controlling shareholders to a greater extent and when the signaling of share pledging about a firm’s weak future performance is stronger. Finally, this paper further shows that the 2018 new regulation on share pledging effectively alleviates the negative impacts of share pledging on earnings informativeness.Originality/valueFirst, this paper adds to the growing literature on the economic consequence of share pledging by documenting the adverse impacts of share pledging on earnings informativeness. The literature on the economic consequence of share pledging is often mixed, which justifies further research on the impacts of share pledging on earnings informativeness. Second, this paper documents a new signaling channel through which share pledging affects earnings informativeness. Third, the finding of this paper on the 2018 new regulation on share pledging may be interesting to research agencies, such as the Chartered Financial analyst institute and Institutional Shareholder Services institute that recommend tightening regulations on share pledging.

Effect of ESG Disclosure and Intellectual Capital on Earnings Persistence: Evidence from Indonesia

Effect of ESG Disclosure and Intellectual Capital on Earnings Persistence: Evidence from Indonesia

Tacit vigilance in an emerging economy: An institution-based perspective of passive blockholder monitoring

We argue that the relative effectiveness of active and passive blockholder monitoring is driven by the institutional context of the Korean financial market, characterized by the dominance of chaebols and the pressure sensitivity of institutional blockholders. We believe that the extensive business ties between chaebols and blockholders effectively increase the cost of shareholder activism in Korea, making passive monitoring a more applicable governance mechanism for blockholders. We test whether passive monitoring affects a firm’s earnings quality, represented by earnings persistence, value relevance, and timeliness. Furthermore, we decompose institutional shareholding by portfolio turnover and nationality and then determine the monitoring channel that influences earnings quality. We find that passive monitoring by domestic blockholders is most effective in improving earnings quality in Korea. In addition, our findings highlight that the difference between the institutional context of developed economies and that of Korea results in different outcomes related to blockholder monitoring.

The Moderating Effect of Earnings Persistence on the Relationship between Intellectual Capital and Investment Efficiency: Evidence from an Emerging Market

The Moderating Effect of Earnings Persistence on the Relationship between Intellectual Capital and Investment Efficiency: Evidence from an Emerging Market

Accrual estimates, earnings persistence and listed consumer and industrial goods firms in nigeria

The study investigated the effect of accrual estimates on earnings persistence of listed consumer and industrial goods firms in Nigeria. The study employed the ex post facto research design and was anchored on the Signaling Theory. It proxy accounting estimates (being the independent variable) using depreciation estimates, intangible assets estimates, current tax estimates, and pension liability estimates earnings persistence (the dependent variable) was measured using earnings per share. The study used a sample of 25 out of the 33 listed consumer and industrial goods companies’ in Nigeria. These were purposively selected. The data collected and used for the study was for a period of 7 years from 2013 to 2019. The Panel Multiple Regression Technique was employed in testing the hypotheses formulated. Descriptive and correlational analysis were also carried out. The results indicated that accrual estimates, jointly, was significant in influencing earnings persistence at 5% significant level. The study concluded that accrual manipulations influenced persistence of listed consumer and industrial goods firms. It was also recommended that the provisions of IAS 16 should be followed when estimating depreciation so that it does not affect the way performance is measured. Secondly, since the estimated amount of Intangible assets has significant effect on the earnings persistence of listed firms, they should estimate it with optimality and reasonability since affects the performance. Thirdly, since current tax estimates have significant positive effectson both the earnings persistence in Nigeria, it means that firms should be mindful when estimating current tax, as this could affect the way their performance is measured. And finally it was recommended that pension liabilities also should be estimated using the provisions of IAS 19, since it does not have significant effects on the earnings per share of listed consumer and industrial goods firms in Nigeria.

Factors Affecting Profit Persistence

This study aims to determine the factors that influence earnings persistence in G0-Public BUMN companies listed on the Indonesian stock exchange for the 2017-2019 period. This study uses quantitative research with secondary data as a data source. The population of this study is the G0-Public BUMN companies listed on the Indonesia Stock Exchange for the 2017-2019 period, totaling 20 companies. Based on purposive sampling criteria obtained 16 companies that meet the research criteria. This study uses data analysis testing software SPSS (Statistical Package for Social Science) version 23. The results showed that operating cash flow, debt level, firm size, cash flow volatility, sales volatility had an effect on earnings persistence.
 Highlights:
 
 
 Earnings persistence in G0-Public BUMN companies: This study focuses on understanding the factors that influence the stability and consistency of earnings in government-owned public companies listed on the Indonesian stock exchange.
 
 
 Factors affecting earnings persistence: The study identifies several key factors that have an impact on earnings persistence, including operating cash flow, debt level, firm size, cash flow volatility, and sales volatility.
 
 
 Quantitative research and data analysis: The study adopts a quantitative research approach using secondary data obtained from the Indonesian stock exchange. Data analysis is performed using SPSS software to determine the relationships between the identified factors and earnings persistence.
 
 
 Keywords: earnings persistence, G0-Public BUMN companies, Indonesian stock exchange, quantitative research, SPSS.

A Simple Approach to Better Distinguish Real Earnings Manipulation from Strategy Changes*

ABSTRACTResearchers typically infer real earnings management when a firm's operating and investing activities differ from industry norms. A significant problem with classifying deviations from industry averages as myopic earnings management is that companies can change their operating and investing decisions for strategic business reasons rather than to mislead stakeholders. Using principal components analysis, we systematically evaluate existing measures and develop a comprehensive real activities measure to better capture earnings manipulation. Our measure reflects (i) deviations from industry averages across multiple activities and (ii) other signals of manipulation. This approach is promising because, although there are many sources of abnormal activities, manipulation is more likely the cause when managers engage in multiple income‐increasing abnormal activities that coincide with other signals that indicate an elevated risk of manipulation. This simple approach results in a metric that associates negatively with future operating performance and earnings persistence, yields high‐power tests, and captures manipulation reasonably well across most life‐cycle stages. Importantly, this approach performs better than the standard real earnings management metrics across all dimensions. Specifically, it generates the expected reduction in future earnings and reduced earnings persistence in 82% of the tests compared to 36% and 46% in common alternatives. Also, because this innovation does not require a long time‐series or rely on future period realizations for classification, it can be useful in more research settings than other recent innovations in the literature.

Benchmark Beating and Earnings Manipulation in Nigerian Firms

Earnings management among firms remains a central focus for academics, auditors and regulatory bodies. Benchmark-motivated earnings management occurs when managers engage in opportunistic activities, including flexible use of accounting standards to misrepresent the information in a firm’s financial reports. Academic research has focused on how firms manage earnings to beat benchmarks, but the evidence regarding firms in emerging African stock markets is scarce and none is available for Nigeria. We applied both accruals quality and discretionary accruals models to detect whether firms that beat earnings benchmarks report earnings differently from others. Using 161 firms listed on the Nigerian Stock Exchange from 2002 to 2019, the study verifies how benchmark beaters manage earnings under the framework of two earnings thresholds – earnings (level) and positive earnings changes. Earnings persistence tests were carried out to verify whether benchmark beaters are consistent manipulators relative to non-beaters. The findings indicate that positive earnings benchmarks differ among the dichotomized groups. The evidence is not sufficient to validate that the change in earnings benchmarks motivates earnings discretions. However, the evidence may improve for larger samples. The study offers insights for informed decisions on the expectation of investment returns for investors, creditors, and other market partakers that require earnings information.

Factors Affecting Earning Response Coefficient with Profitability as a Moderating Variable in Mining Companies Listed on The Indonesia Stock Exchange for the 2018-2020 Period

This study aims to determine the effect of capital structure, firm size, earnings persistence, and growth opportunities on the earnings response coefficient with profitability as a moderating variable in mining companies listed on the Indonesia Stock Exchange for the 2018-2020 period. The population used in this study was 52 mining companies listed on the Indonesia Stock Exchange. The sampling method is to use purposive sampling. Based on the criteria that have been made, the number of samples is 37 companies, so a total of 111 research observations are obtained. Data processing was carried out using the EViews statistical program. The results of this study indicate that: (1) capital structure has a negative and significant effect on the earnings response coefficient, (2) firm size has a positive and significant effect on the earnings response coefficient, (3) earnings persistence has a positive and significant effect on the earnings response coefficient, (4 ) growth opportunities have a positive and significant effect on the earning response coefficient, (5) profitability can moderate the effect of capital structure, firm size, and growth opportunities on the earning response coefficient, (6) profitability is not able to moderate the effect of earnings persistence on the earning response coefficient. Keywords: Capital Structure, Firm Size, Profit Persistence, Growth Opportunities, Profitability, Earning Response Coefficient.

Pengaruh Corporate Social Responsibility terhadap pemberian keuntungan jangka panjang pemegang saham

Companies, as economic entities, regardless of the form of industry, aim to make optimal profits to increase the wealth of shareholders, but that alone is not enough. This study aims to find out what long-term benefits will exist for a company when it implements corporate social responsibility for its shareholders. This study uses a quantitative method, and data tests were conducted on 255 companies tested in 2017–2021. The data used has usually been distributed. The test results show that the obligation of CSR in a company has no significant positive effect on earnings persistence. This researcher proves that the fulfillment of CSR obligations in a company cannot guarantee the persistence of profits in that company. Furthermore, the authors claim that the obligation of CSR in a company has no significant positive effect on earnings persistence. This researcher proves that the fulfillment of CSR obligations in a company cannot guarantee the persistence of profits in that company.