Firm Earnings Research Articles

HYBRID REDUCTION ALGORITHM WITH CAT SWARM OPTIMIZATION FOR CHURN PREDICTION

Customer complexity is a main issue and for large companies is the main problem. Considering the immediate impact on firms ’earnings, companies are trying to change strategies to calculate customer concerns. Consequently, it is very important to find a way to solve this problem by differentiating the factors that increase the client's depression. The chief involvement of this study is to progress an effective churn prediction prototypical using a hybrid approach. Here, initially, data is collected from the dataset and the missing data is removed at the pre-processing stage. Then, to reduce the problem, the input dataset is enhanced as a dimension reduction function. For dimensional reduction, the proposed method uses a hybrid technique. Here, PCA and LDA algorithm are hybridized to reduce dimensionality. After the dimensionality reduction process, the reduced dataset is provided to the optimal continuous neural network (ORNN). Here, the traditional RNA classifier is trained with Cat Swarm Optimization (CSO). In this work, Tera Data Center at Duke University churn set of predictive data for the calculation, the measured performance. Finally, the performance of the proposed model is estimated at different scales, and it is recognized that the proposed system, designed with dimensional reduction through optimal classification methods, performs better with 95.08% classification accuracy compared to other classification models.

What Do Short Sellers Know?*

Abstract Using NYSE short-sale order data, we investigate whether short sellers’ informational advantage is related to firm earnings and analyst-related events. With a novel decomposition method, we find that while these fundamental event days constitute only 12% of sample days, they account for over 24% of the overall underperformance of heavily shorted stocks. Importantly, short sellers use both public news and private information to anticipate news regarding earnings and analysts. Shorting’s predictive ability remains significant after controlling for information in analyst actions and displays no reversal patterns, indicating that short sellers know more than analysts, and the nature of their information is long term.

Earnings Predictability of Quoted Firms in Nigeria

The inability of investors to predict future earnings of firms exposes them to further risk such that potential investors may be scared away while existing ones may be prompted to withdraw their investment. Thus, it becomes imperative to evaluate the earnings predictability of Nigerian quoted firms with a view to establish the ability or inability of earnings to predict itself. Also, the study examined the impact of volatility on earnings predictability of Nigerian quoted firms. The total number of seventy three (73) quoted Nigerian firms constitutes the population of this study and the entire 73 firms were studied. The causal relationship research design was adopted. The secondary data used were collected from the financial statements of the quoted firms for the period 1996 to 2015. The system generalized method of moment (GMM) was used to estimate the dynamic panel regression models of the study. The study found that earnings of firms are predictable. The study also found that volatility has adverse effect on earnings predictability. It was therefore recommended more interest/investment in Nigerian firms since earnings information is available and is predictable while managements of firms should reduce instability in reported earnings.

Related Party Transactions, Value Relevance and Informativeness of Earnings: Evidence from Four Economies in East Asia

We investigate the effect of related party transactions (RPTs) on value relevance and informativeness of accounting earnings for firms based in East Asia. Using a hand-collected sample of 398 listed companies comprising 1194 firm-year observations from Hong Kong, Malaysia, Singapore and Thailand, we find that firms engaging more extensively in RPTs have significantly lower value relevance and lower informativeness of earnings both in the current year and subsequent year than firms engaging less in RPTs. Furthermore, the results indicate that the types of RPTs affect value relevance and informativeness of earnings differently in that the effect of simple and loans RPTs are more negative than complex transactions. The extent of the negative effect of RPTs is lower in Hong Kong and Singapore where investor protection is higher compared to the other two economies. These findings are robust to controlling for firm-specific attributes, corporate governance, ownership structure, earnings quality, and a variety of sensitivity tests. These results are consistent with the conflict of interest view that RPTs compromise the quality of accounting earnings and this leads to the reduction in earnings and market value relationship for firms that engage in RPTs.

Value Relevance of Asset Revaluation Disclosure

: Research aims : The paper aims to examine the value relevance of asset revaluation disclosure after seven years of implementation of international accounting standards (IAS). This paper highlights the implementation of SFAS 16 which is converged to IAS 16 regarding fixed assets. The SFAS 16 requires companies to disclose the value of fixed assets according to market values if the book value is significantly different from the market value. Design/Methodology/Approach : We analyze 46 non-financial companies that employ the revaluation model during 2012-2018. As benchmarks, we randomly collect 46 non-financial companies that d0 not revaluate their assets during the period. To investigate the value relevance of upward asset revaluation disclosure, we approximate the relationship between and the effect of upward asset revaluation disclosure and stock price by employing Ohlson modified model (1995). Research findings : We suggest that disclosure of upward asset revaluation is value-relevant. The SFAS 16 states that an upward asset revaluation increases the value of equity and assets. Furthermore, we suggest that the information of the book value of equity, net income, and earnings of asset revaluation firms is value-relevant. The results show that the information of the book value of equity and earnings are more value-relevant than upward asset revaluation disclosure and net income. Theoretical contribution/Originality : Our study contributes to filling the gap of previous results related to the value relevance of fair value disclosure of fixed assets. Practitioner/Policy implication : This research gives an input for financial accounting standards development in Indonesia, particularly regarding the issue of asset revaluation. Research limitation/Implication : Only 46 non-financial companies that employ the revaluation model during 2012-2018. Thus, our study has a small sample size

Achieving Earning Target through Real Activities Manipulation: Lesson from Stock Exchange of Thailand

This paper aims to investigate managers' intention to manage firms' earnings through operational activities intervention. The real activities manipulation through discretionary expenses, sales manipulation, and production manipulation was inspected using the sample of the Stock Exchange of Thailand listed companies. In this study, we identified firms reporting small earnings or small growth in earnings as the suspect firms. Our results revealed that the executives of the suspect firms engage in real activities manipulation to either avoid loss or to smooth firm's earnings. Given the fact that the operational activities intervention is hard to detect, the market regulators of the emerging countries need to monitor such practise as well as introduce legislation relevant to this form of corporate fraud.

Between Firm Changes in Earnings Inequality: The Dominant Role of Industry Effects

We find that most of the rising between firm earnings inequality that dominates the overall increase in inequality in the U.S. is accounted for by industry effects. These industry effects stem from rising inter-industry earnings differentials and not from changing distribution of employment across industries. We also find the rising inter-industry earnings differentials are almost completely accounted for by occupation effects. These results link together the key findings from separate components of the recent literature: one focuses on firm effects and the other on occupation effects. The link via industry effects challenges conventional wisdom.

An Inquiry into Earning Management Motives: Evidence from Pakistani Distressed and Non-Distressed Firms

This research takes in view the motives that drive opportunistic managers in the Pakistani corporate world to manipulate firm earnings in different financial circumstances by resorting to real (REM) and accrual (AEM) earning management to reap their self-interests. The present study undertakes 188 distressed and 37 non-distressed firms for the sample period of 2010-2017. The summary stats confirm that both in distressed and non-distressed firms’ managers resort to REM practices more than AEM. The factors that urge mangers to take REM practices in distressed firms i.e., debt covenant restriction, managerial ownership and tax avoidance needs to be amended in such a way that it demotivates managers for carrying such practices in distressed firms. The factors that influence AEM practices in distressed firms are debt covenant restrictions, institutional ownership, highly valued firms and managerial ownership whereas in non-distressed firm these factors are debt covenant and effective tax rate. In non-distressed firms motives that urge mangers to adopt REM, practices are raising additional capital and tax avoidance practices.

A Study on the Issues of Financial Ratio Analysis

Financial statement analysis consists of applying analytical tools and techniques to money statements in an endeavor to quantify the in operation and money conditions of a firm. The stress of the analysis changes relying upon one's relationship with the corporate. A analyst extending a short, unsecured loan to an organization can examine the firm's income and also the liquidity of the company's assets. A stock capitalist, on the opposite hand, is primarily searching for future growth in income and earnings. Investors generally examine variables which may considerably impact a firm's money structure, sales, earnings production, and dividend policy.

The corporate credit rating changes and firm returns in a transitional economy: The case of South Africa

Background: Investors depend on rating agencies to provide an independent assessment of the ability of companies operating in the transition economy to meet their debt obligations. Any change in a firm’s credit rating conveys informed signals about the financial health of the firm and that information should offer markets better knowledge about the future prospects of the firm’s ability to pay creditors and equity holders. What we do not know is the magnitude of the impact of credit rating change on the stock yields of companies operating in a transitional and risky economy like South Africa. The literature indicates that the amount of influence that a rating agency has on equity returns is ambiguous. Objectives: The purpose of this study is to determine whether companies’ share prices react to a change in credit rating. The study also investigates the financial risk factors that differentiate between credit rating downgrades and upgrades. Methods: The event study methodology was utilised to measure the abnormal returns of companies listed on the Johannesburg Stock Exchange (JSE) that had a credit rating change between 2005 and 2015. Logistic regression was used to establish the financial factors influencing the direction of credit rating change. Results: We found that there was no significant impact evident on equity prices when companies’ credit rating upgrades were announced by the credit rating agencies, indicating that the upgrades are largely anticipated by the market at the time they are announced. However, the market reacts significantly negatively when companies’ credit rating downgrades are announced, suggesting that only credit rating downgrades contain relevant pricing information. The finding implies that the credit rating downgrades may lead to disinvestment from the economy, leading to deterioration in macroeconomic indicators in the country within which the firm operates. Furthermore, factors, including interest cover and firm earnings, are significant in differentiating between credit rating upgrades and downgrades, implying that debt issuers in South Africa can manage their credit rating by managing specific financial risk factors. Conclusion: In an emerging and transitional economy like South Africa, the market reacts significantly negatively to credit rating downgrades, just as they do in developed countries like the USA. Stock prices react negatively to credit rating downgrades because credit rating agencies convey adverse private information about a company through these downgrades.

Corporate organizational structure, tax havens and analyst forecast properties

ABSTRACTThis study investigates how corporate organizational complexity affects analyst forecast behavior and the information environment of the firm. Using a unique sample of publicly traded Taiwan companies which are required to disclose information on all of their affiliates, we capture the feature of organizational complexity by measuring the number of investment layers connecting the parent firm and the lowest-tiered subsidiary. We argue that long chains of investment layers, which are associated with higher information asymmetry and agency costs, are likely to reduce the quality of financial reporting and complicate analysts’ forecast tasks. We find that, after controlling for other determinants of forecasting behavior, analysts experience greater difficulty in predicting the earnings of firms with more investment layers than in predicting the earnings of firms with fewer layers. In addition, we find that a long chain of investment layers influences analyst forecast accuracy and dispersion more if firms also have a larger number of investees in tax havens and if firms have a higher deviation between controlling rights and cash flow rights. Overall, we document that organizational complexity exacerbates the agency costs between investors and managers, which in turn complicates analyst forecast tasks.

Financial Reporting Comparability and Accounting-Based Relative Performance Evaluation in the Design of CEO Cash Compensation Contracts

ABSTRACTThis study examines how cross-firm differences in financial reporting practices affect how peer-firm accounting information is used to evaluate CEO performance. I propose that efficient relative evaluation using accounting performance requires peer firms to have comparable financial reporting systems, allowing boards to reduce the information processing costs associated with differences in firms' financial reporting practices. Supporting this view, when peer selection takes financial reporting comparability into account, I find evidence that the earnings of peer firms with high financial reporting comparability serve as a performance benchmark for determining CEOs' cash compensation. My paper empirically corroborates the substantial anecdotal evidence of the use of peer firms' accounting performance as a significant element in boards' evaluation of CEO performance.JEL Classifications: D8; G3; J33; M41.

Are family firms more optimistic than non-family firms?

PurposeThe purpose of this study is to investigate how family ownership affects the disclosure tone of firm earnings press releases.Design/methodology/approachFollowing prior literature, this study defines family firms as those in which members of the founding families continue to hold positions in top management, to sit on the board or to be blockholders. The disclosure tone of earnings press releases is measured by the level of optimism in firms’ earnings announcements using Loughran and McDonald’s (2011) word classifications. Multivariate analysis is performed to examine the impact of family ownership on firms’ disclosure tone. Additional analysis includes controlling for different firm-level characteristics and using alternative measures of disclosure tone.FindingsThis study documents that the disclosure tone of earnings announcements is more optimistic for family firms than for non-family firms. The result implies that family owners’ large undiversified equity position in their business results in strong incentives for them to issue more positive earnings announcements to maintain high stock performance. Further analysis reveals that the results are mainly driven by family firms with founder CEOs. The results are robust to controls for corporate governance characteristics and to alternative measures of corporate disclosure tone.Originality/valueThe findings of this study contribute to the literature that examines factors associated with the determinants of the tone in firms’ earnings announcements. In addition, this study adds to the extant literature on family firms by providing useful insight into the influence of family control on corporate voluntary disclosure.

Visuals and Attention to Earnings News on Twitter

We propose the visual attention hypothesis that visuals in firm earnings announcements increase attention to the earnings news. We find that visuals in firms’ Twitter earnings announcements are associated with more retweets, consistent with greater user engagement with announcements that have visuals. This result holds for earnings tweets sent by the same firm and on the same day in firm-level and tweet-level analyses. Consistent with managerial opportunism, firms are more likely to use visuals in their earnings tweets when performance is good but less persistent. Consistent with visuals increasing investor attention, the initial return response to earnings news is stronger and the post-announcement response is lower when visuals are used. Our evidence of a post-announcement return reversal indicates that visuals can be a double-edged sword. Furthermore, the higher earnings response coefficient from visuals is more pronounced on days with high investor distraction (when many other firms are also announcing earnings).

International Strategy, R&D Intensity, and Sustainable Earnings of Biotech Firms

For a relatively small country such as Korea to successfully establish its presence in the global biotech industry, it must pair a successful domestic model with an effective export strategy. However, there are little empirical findings on the relationship between biotech firms’ internationalization strategy, research and development (R&D) intensity, and sustainable earnings. Thus, we explore this often overlooked area by analyzing the relationship between the international strategies and sustainable earnings of biotech firms. By using a sample of 29,583 firm-year observations in South Korea between 2000 and 2017, this study analyzes the association between internationalization strategy and sustainable earnings. Findings from the analysis show that internationalization strategy has a negative impact on biotech firms. However, the impact of international strategy on sustainable earnings of a biotech firm is observed to be positively influenced by R&D intensity. This study contributes to the research on the determinants of sustainable earnings by empirically proving that biotech firms’ internationalization strategy with high R&D investments leads to an increase in earnings sustainability.

Financial Reporting Frequency and Earnings Information Spillovers around the World

We uncover a negative consequence of reduced financial reporting frequency, namely excessive earnings information spillovers. Our central idea is that investors in firms that report earnings only semi-annually compensate for the lack of interim earnings disclosures for non-reporting periods — i.e. first three months of semi-annual periods — by relying more heavily on alternative sources of earnings news. We find that returns of semi-annual announcers are almost twice as sensitive to the earnings announcement returns of US industry bellwethers for non-reporting periods compared to reporting periods. Strikingly, these exacerbated spillovers are followed by return reversals when investors finally observe own-firm earnings at the subsequent semi-annual earnings announcement. This indicates that investors periodically overreact to peer-firm earnings news in the absence of own firm earnings disclosures arising from low reporting frequency. Overall, the evidence suggests that reduced reporting frequency impairs the ability of investors to properly value firms and impedes the efficiency of financial markets.

Illiquidity and Price Informativeness

This paper shows that liquidity conditions are important determinants of the predictability of earnings. Liquid stock prices are more informative about future firm earnings growth than illiquid stock prices. Because information-related illiquidity can arise when uncertainty is high, we focus our analysis on evidence that noninformational liquidity affects price informativeness. Endogeneity is further addressed using controls for market uncertainty and several exogenous shocks as natural experiments. Thus, our results lend support for the impact of liquidity on price discovery.This paper was accepted by Lauren Cohen, finance.

The Investigation of the impact of the firm factors on stock returns of non-financial listed firms in kenya

Firms can be distinguished from one another on the basis of different financial and non-financial factors including firm size, firm value, leverage, earnings per share, cash flow and firm structure. These factors are unique to individual firms and influence the perception of investors towards the future performance of the firms. The aim of the study is to examine the impact of, Firm value, Earnings per share and Firm size on stock return for non-financial listed firms in Kenya. This study used census and covered all non-financial listed firms at the NSE between the years 2008 to 2016. The choice of this period was informed by various reforms undertaken at the NSE. These includes a rise in initial public offers (IPOs), additional offers (AOs), right issues, bonus issues and stock splits. These reforms have had great influence on stock returns. There are 44 non-financial listed firms in the Nairobi Securities Exchange. A number of studies in the empirical literature have documented that firm earnings scaled by market value of equity are related to average return. This study is meant to assess the sensitivity of empirical results of firm value, earnings per share and firm size on stock return for non-financial listed firms in Kenya. The study contributed to the body of knowledge in that non-financial listed firms have gained practical insights into the impact of firm factors under consideration on stock return thereby enriching their knowledge on how to increase overall positive results. The study was based on the problem that whereas there were various firm factors attributed to each firm, it was not clear how, firm value, earnings per share and firm size affect stock return for non-financial listed firms on stock markets particularly those with factors like in Nairobi Securities exchange. This was particularly because existing Empirical literature was scarce in this case. Panel regression model was applied to test the significance of the independent variables on dependent variable and unit root test, Co integration and granger causality test was applied for empirical testing of the data. Descriptive statistics was used to describe basic features of the data in the study.

Family ownership and earnings quality of Thai firms

PurposeThe purpose of this paper is to provide evidence that the quality of earnings of family run firms is superior to that of the other firms and that firms run by founding family members exhibit this trait even more prominently. Using insights from the fundamental accounting valuation model, this study also hypothesizes that financial markets place a higher weightage on earnings than book value for founding family-run firms in Thailand as these firms report a more reliable earnings number.Design/methodology/approachThis is an empirical archival research.FindingsThe authors report evidence that financial markets place a higher weightage on earnings than book value for founding family-run firms. The evidence is consistent with the insight that current earnings of the founding family-run firms offer more information about future earnings and cash flow compared to book value than those for family (FAM) and non-family (NonCS) firms. The authors also provide evidence that earnings persistence and the accrual quality of the founding family firms are higher compared to the other firms. This evidence is contrary to the notion that family firms have more opaque disclosures, lower earnings quality and higher implied cost of equity capital.Research limitations/implicationsThe authors find support for the alignment hypothesis of the long-term family ownership of Thai firms. The authors consider these evidences consistent with the shareholder interest alignment hypothesis of the controlling shareholders as opposed to the entrenchment hypothesis.Practical implicationsThe study implies that earnings of the Thai firms run by founding family members are more reliable and can be relied on more for firm valuation. Additionally, the authors also offer a different methodology by appealing to the valuation properties of the reported accounting numbers besides looking at the quality of accruals and earnings persistence tests offered in the existing literature.Social implicationsThe society is better off if there are more opportunities to invest in Thai firms run by founding family members. The finding of the quality difference in governance by firms with founding family members is new. Therefore, the study points to the need of finer partition of the family firms while looking at their corporate governance practices. The fact that the FF firms offer a higher quality of earnings implies that they are less engaged in opportunistic manipulation of earnings and cash flow and, thus, are self-motivated to protect the longer term interest of the firms.Originality/valueThis if the first time the accounting fundamental valuation theory has been used to provide evidence of higher earnings quality.

Do investors anticipate the future earnings of firms in a homogeneous industry?

ABSTRACT This paper investigates whether industry homogeneity improves earnings informativeness about future earnings. Because homogeneity, defined as a similarity in accounting practices in generating earnings of firms in the same industry, facilitates information transfer and comparability among peer firms, we conjecture that homogeneity influences investors’ abilities to forecast future earnings. Using Korean data, we found that homogeneity has incremental effects on the future earnings response coefficient (FERC). After including control variables and utilizing re-measured homogeneity, the results remain unchanged. Our findings imply that the homogeneity of accounting practices within an industry benefits market participants.