Equity Earnings Research Articles

Calm Markets, Confident PE Executives: Private Equity Earnings Calls Reflect Renewed Optimism in Q1’24

Calm Markets, Confident PE Executives: Private Equity Earnings Calls Reflect Renewed Optimism in Q1’24

From Economics to Earnings: A Macro-Based Equity Earnings Growth Forecasting Model

Earnings growth measures the change in a company’s reported net income through time. It is arguably the most widely observed measure of the growth and the profitability of a business, and a critical driver of equity returns. Though many practitioners have relied on historical averages to inform earnings growth expectations, research has found a relationship between earnings growth and prevailing economic growth. Building on prior research that connects earnings growth with real GDP growth, the authors split the earnings growth into two parts—revenue growth and changes in profit margins—and identifies multiple macroeconomic factors that have historical relationships separately with each. The authors find that revenue growth can historically be explained by world GDP growth, US GDP growth and payout ratios, and changes in profit margins can be explained by labor costs trade intensity. Upon conducting the out of sample test, this article offers a robust solution on predicting future earnings growth with macroeconomic factors and provides an important framework for understanding a key component of equity returns.

The Effect of Company’s Fundamental, Market Return and Macroeconomic to Stock Return: A Case Study of Consumer Goods Companies Listed in BEI Period 2009-2018

The aim of this study was to understand whether the company’s fundamental factors through liquidity ratio, asset management ratio, profitability ratio, debt management ratio and market value ratio, specifically represented by current ratio, Total Assets Turnover (TATO), Return on Assets (ROA), Debt to Equity ratio (DER) and Earnings per Share (EPS) yield; market return and macroeconomic factors (Gross Domestic Product, interest rate, exchange rate) affect the stock return of Consumer Goods companies’ listed in BEI period 2009-2018. There were various former studies did to correlate stock return with financial ratios or macroeconomic partially. This study was done to understand the effect of the stock return with both company’s factors and macroeconomic factors, partially and simultaneously. This study used quantitative approach, in the area of Consumer Goods companies listed in BEI during period of the research, covering 23 companies that represented 84% of Consumer Goods market capitalization. The methodology being used was data panel regression using Common Effect Model, through 886 observations. The results were (1) partially, TATO, EPS yield, market return and exchange rate affected the stock return (2) simultaneously company’s fundamental, market return and macroeconomic affected the stock return. This means in consumer sector, investors put attention on asset management, earnings yield, market condition and macroeconomic. Therefore, the author recommended that many extended researches can be done on the financial ratios, market return and macroeconomic, using different variable, especially due to TATO affect the stock return while conversely ROA and DER were not.

Management control systems in the knowledge economy: Assessing the role of intellectual capital in

The purpose of this paper is to show that intellectual capital (IC) efficiency as measured by the value added intellectual coefficient (VAIC) and its individual components may function as key performance indicators for use in management control and external reporting to capital market participants. We incorporate the VAIC within the Ohlson model (OM), a widely used model for equity valuation, which relates a firm's market value to the book value of equity and net earnings, and allows to include any other information that may affect the market assess-ment of firm value. We then estimate the modified OM on a panel sample of firms continuously listed on the Italian Stock exchange from 2011 to 2017 using a fixed effect (FE) specification. Empirical results indicate that IC efficiency contributes along with the traditional accounting metrics included in the OM to explain the stock market performance of sample firms. This paper suggests that the VAIC and the individual measures of IC efficiency may usefully complement traditional accounting measures of performance.

Accrual income statements and present value models

PurposeThis paper demonstrates that present value (PV) models can be viewed as multiperiod extensions of accrual income statements (AISs). Failure to include AIS details in PV models may lead to inaccurate estimates of earnings and rates of return on assets and equity and inconsistent rankings of mutually exclusive investments. Finally, this paper points out that rankings based on assets and equity earnings and rates of return need not be consistent, requiring financial managers to consider carefully the questions they expect PV models to answer.Design/methodology/approachAISs are used to guide the construction of PV models. Numerical examples illustrate the results. Deductions from AIS definitions demonstrate the potential conflict between asset and equity earnings and rates of return.FindingsPV models can be viewed as multiperiod extensions of AISs. Mutually exclusive rankings based on assets and equity earnings and rates of return need not be consistent.Research limitations/implicationsPV models are sometimes constructed without the details included in AISs. The result of this simplified approach to PV model construction is that earnings and rates of return may be miscalculated and rankings based as asset and equity earnings and rates of return are inconsistent. Tax adjustments for asset and equity earnings may be miscalculated in applied models.Practical implicationsThis paper provides guidelines for properly constructing PV models consistent with AISs.Social implicationsPV models are especially important for small to medium size firms that characterize much of agricultural. Providing a model consistent with AIS construction principles should help financial managers view the linkage between building financial statements and investment analysis.Originality/valueThis is the first paper to develop the idea that the PV model can be viewed as a multiperiod extension of an AIS.

The Comprehensive Tax Gain from Leverage

We expand the traditional specification of the tax gain from leverage by accounting for the choice between issuing debt and utilizing internal retained earnings equity. Standard analyses focus solely on the choice between debt and external equity. This results in the traditional tax gain from leverage, which equals the corporate tax benefit from debt minus the partially offsetting personal tax disadvantage. Expanding the debt analysis to include internal equity introduces a third tax component to the gain from leverage: a supplemental personal tax disadvantage. This supplemental disadvantage reflects the personal tax cost of distributing internally-generated equity to investors and using replacement debt. It reduces the overall or comprehensive tax gain from leverage and frequently converts it into a tax loss. Therefore, using debt often is costlier than generally assumed. We provide conceptual support for the comprehensive tax gain, plus some initial empirical support.

Capital Structure Composition and Financial Performance of Food and Beverage Firms in Nigeria

The study examined capital structure composition and Financial performance of Food and Beverage firms using Secondary data obtained from Nigeria stock exchange. Leverage composition; Short term debt to total Asset, Long Term debt to total asset and debt-equity ratio were regressed against market performance proxies earnings yield, price/earnings ratio and Tobin Q. Variables were subjected to Hausmann test for selection of appropriate model. Findings indicate Significant positive relationship between short term debt over total asset ratio and Tobin Q, Long term debt to total asset relate significantly positively with Tobin Q and earnings yield Also, there is Significant positive relationship between Debt Equity ratio and Earnings yield. We also found significant negative relationships between Short term debt and Earnings yield, Long term debt and P/E ratio, and between Debt Equity ratio and Tobin Q. Additionally, we found insignificant negative relationship between Short term debt and Price earnings ratio and between Debt equity ratio and P/E ratio. Also, a shift in capital structure composition from STD/TA to LTD/TA has a positive effect on TBQ which is statistically significant and a Shift from LTD/TA to STD/TA still maintains an equally positive effect on TBQ. However, it is more rewarding for the firm to shift to more long-term debt in its capital structure as it has higher effect on TBQ. A shift from TD/TA to LTD/TA has a significant positive effect on Earnings Yield and a shift from LTD/TA to STD/TA has a positive insignificant effect on EY. It will be rewarding for the firms to increase their earnings yield by shifting from STD to LTD. Based on findings, we conclude different compositions of leverage have different effects on market valuation of firms. We recommend Firms should optimally use LTD to increase market valuation. And should also examine capital structure composition to ascertain which of the combination maximises firm value Keywords: Capital Structure Composition, Tobin Q, Earnings Yield, Debt/Equity ratio, Price Earnings Ratio DOI : 10.7176/EJBM/11-24-01 Publication date : August 31 st 2019

Option Market Signals and the Disposition Effect Around Equity Earnings Announcements

The authors provide evidence that equity traders who miss or ignore signals from the options market have an increased disposition to hold their loser positions following earnings announcements. Postearnings equity returns that (do not) align with pre-earnings options market signals are fast (slow) to return to ordinary levels. We attribute this to the disposition effect arising from overconfident traders. The authors furthermore show an enhanced positive relationship between postearnings equity returns and option-implied volatility spreads when those spreads are driven by deep out-of-the-money options, which we attribute to the existence of private information.

Foreign Direct Investment in India Opportunities and Challenges

Foreign Direct Investment (FDI) is the dispersal and optimisation of resource packages like human, financial, knowledge, physical and reputational resources. The motivational factors such as natural resources, market resources, strategic resources, efficiency resources, locational advantages, etc., influenced Multinational Enterprises (MNEs) to perform various activities in the host countries. MNEs internationalise business mainly to acquire intangible assets and for balancing resources which they do not possess. India is in receipt of continuous capital flow due to favourable policy management and a strong business environment. Globally, Indian corporations continually display significantly better equity earnings over other countries both developed and emerging. The Government of India is very keen in simplifying FDI rules with an ultimate aim to attract more investors with zero hazards.

PENGARUH STRUKTUR KEPEMILIKAN DAN STRUKTUR MODAL TERHADAP HARGA SAHAM

This paper aims to investigate the short and long run behavior of ownership structure, capital structure and Indonesian Stock Price over the period from 2007 to 2016. To capture the long run relationships, we used the panel cointegration by Pedroni (1999, 2000, 2004), while the short run relationship are measured by Vector Error Correction Model (VECM). The main findings are as follows. First, the result of most results of Pedroni’s panel cointegration tests, suggest the null hypothesis of no cointegration is rejected. In consequence, this result suggests that there is a cointegration between stock price, managerial ownership, institutional ownership, public ownership, debt to equity ratio and earnings per share. Second, the results of VECM indicate that in the short run, only managerial ownership that will influence the stock price.

PENGARUH STRUKTUR KEPEMILIKAN DAN STRUKTUR MODAL TERHADAP HARGA SAHAM

This paper aims to investigate the short and long run behavior of ownership structure, capital structure and Indonesian Stock Price over the period from 2007 to 2016. To capture the long run relationships, we used the panel cointegration by Pedroni (1999, 2000, 2004), while the short run relationship are measured by Vector Error Correction Model (VECM). The main findings are as follows. First, the result of most results of Pedroni’s panel cointegration tests, suggest the null hypothesis of no cointegration is rejected. In consequence, this result suggests that there is a cointegration between stock price, managerial ownership, institutional ownership, public ownership, debt to equity ratio and earnings per share. Second, the results of VECM indicate that in the short run, only managerial ownership that will influence the stock price.

THE IMPACT OF THE MARKET CYCLE ON THE VALUE RELEVANCE OF BOOK VALUES AND EARNINGS IN THE BANKING INDUSTRY: AN EVIDENCE FROM POLAND

The paper aims at the empirical investigation of the impact of the market cycle on the value relevance of book values and earnings in the banking industry. unlike most prior studies, the paper directly examines the influence of cyclical fluctuations in investors’ sentiments on the informativeness of these key accounting variables. Moreover, the study enhances the literature on the value relevance of banks’ financial reporting by providing an empirical evidence from the emerging capital market ofPoland. The examined sample covers all domestically-based commercial banks listed on the Warsaw Stock Exchange over the period 1997–2016. The empirical evidence based on the analyses of parametric and non-parametric correlation and regression indicates a significant impact of the market cycle on the value relevance of book values which markedly increases (decreases) in the periods of bull (bear) market. In contrast, the informativeness of earnings seems to be driven primarily by factors other than investors’ sentiments. The results of the research indicate that the course of the market cycle is partially driving the fluctuations of the value relevance of book values of equity and net earnings in the Polish banking industry. There is a need for further investigation of the impact of market cycles on the value relevance of accounting data, not only in the context of the banking sector.

Environmental Accounting and Value Relevance of Accounting Information: Time Series Evidence from Nigeria Commercial Banks

This paper examined the relationship between environmental accounting and value relevance of accounting information of commercial banks in Nigeria.Time series data of the variables used in the research was collected from financial statement of the commercial banks. The study had equity prices and earnings per share as the function of cost of donations, cost of wages and salaries, cost of environmental expenditure and cost of human resource development. The Ordinary Least Square (OLS) method of data analysis with multiple regressions was used in the study. In determining the long-run relationship, stationary and causal relationship that exists among the variables, cointegration, Augmented Fuller Unit Root and Pair wise Causality was used. The static regression result found that the independents variables have positive relationship with the dependent variables excerpt cost of human capital development. The cointegration test revealed at least two cointegrating equation, the stationarity test revealed that the variables are stationary at level while the granger causality test proved no directional relationship. The study conclude that environmental accounting have significant relationship with value relevance of accounting information in Nigeria commercial banks. We recommend that all environmental cost should properly be reported and accountants should ensure well accountability of human capital development.

Knowing Your Worth: Salary Expectations and Gender of Matriculating Physician Assistant Students.

The male-female wage gap is present and persistent in the health care sector, even among physician assistants (PAs). Explanations for the persistent gender earnings gap include differential salary expectations of men and women based, in part, on women's lower pay entitlement. The purpose of this study was to examine differences in salary expectations between male and female matriculating PA students nationwide, adjusting for other factors expected to affect salaries and pay expectations of both male and female matriculants. Using data from the Physician Assistant Education Association Matriculating Student Survey of 2013, 2014, and 2015, we investigated the relationship between first-year PA students' gender and their salary expectations after graduation using a multinomial logistic regression analysis. We controlled for possible confounders by including independent variables measuring student demographics, background characteristics, qualifications, future career plans, and financial considerations. We found that female PA students were less likely than male PA students to expect a salary of $80,000-$89,999 (Odds Ratio [OR] = 0.73), $90,000-$99,999 (OR = 0.58), or $100,000 or greater (OR = 0.42) in comparison to an expected salary of less than $70,000, when controlling for our independent variables. Our analysis shows that on entry into PA training programs, female PA students' earnings expectations are less than those of male PA students. Our results are consistent with research, suggesting that women typically expect lower pay and systematically undervalue their contributions and skills in comparison to men. Physician assistant programs should consider strategies to promote realistic salary expectations among PA students as one way to promote earnings equity.

Rank and file equity compensation and earnings management: Economic incentives and the Robin Hood effect

Rank and file equity compensation and earnings management: Economic incentives and the Robin Hood effect

Prime Equity, Leveraged Structure and Corporate Earnings in Nigeria: A Comparative AnalysisPrime Equity, Leveraged Structure and Corporate Earnings in Nigeria: A Comparative Analysis

This study examined prime equity, leveraged structure and corporate earnings in Nigeria. The objective was to examine if equity value and debt equity ratio have relationship with earnings per share of quoted deposit money banks. Earnings per share were modeled as the function of equity value and debt equity ratio. After cross examination of the validity of the pooled effect, fixed effect and the random effect, the study accepts the fixed effect model. The study found that 74.2% and 66.7% variation on earnings per share can be traced to equity value. The β coefficient indicates that of equity value has positive impact on earnings per share, while Debt equity ratio on of deposit money banks can explain 68.9% and 59.9% variation. The β coefficient proves that debt equity ratio have positive impact on earnings per share of the quoted deposit money banks. From the above results we conclude that equity value have greater impact on earnings per share than debt equity ratio. We recommend that management should ensure optimal capital structure of the quoted deposit money banks.

Rank and File Equity Compensation and Earnings Management: Economic Incentives and the Robin Hood Effect

Executive compensation is often linked to firm performance with equity-based compensation. One consequence of executives’ equity compensation is that it can create incentives for earnings management. Rank and file employees are also granted equity compensation and there are at least two reasons to suspect that rank and file equity compensation will influence earnings management. First, a substantial literature provides evidence that performance-based compensation creates earnings management incentives (economic incentive effect). Second, psychology literature suggests that individuals are better able to justify dubious behavior when the behavior can be rationalized as benefitting other, less-fortunate individuals. Consequently, firms that offer rank and file plans may unwittingly provide executives with a built-in justification to manage earnings (the Robin-Hood effect). Our results provide evidence that increases in rank and file employees’ equity-based compensation are associated with increases in earnings management. Cross-sectional tests are more consistent with economic incentives accounting for our results rather than the Robin Hood effect.

ANALISIS KINERJA PERUSAHAAN PRE-SEASONED EQUITY OFFERINGS

The aim of this research is to prove whether earnings management persists in prior to Seasoned Equity Offerings (SEO) at the Jakarta Stock Exchange. This research is conducted by comparing financial performances during periods before SEO of companies which execute seasoned equity offerings to those which did not. Samples for this research are companies listed in the Jakarta Stock Exchange during 1997 –2002. The hypothesis for this research is that the financial performances of companies executing SEO is higher than those companies not executing SEO. Proxy for SEO is the event of right issue. Current Ratio (CR), Debt Equity Ratio (DER), Return On Investment (ROI) ratio, Net Profit Margin (NPM) ratio, and Operating Profit Margin (OPM) ratio are used to assess financial performance. 47 companies make thesample of companies executing SEO during 1997 – 2002. For comparison, non-SEO companies are chosen from companies of similar industries and size as those of SEO companies.This research provides evidence that, on average, performances of companies executing SEO are higher than those companies not executing SEO, even though the difference is statistically insignificant. The conclusion for this research is that there are no significant financial performance differences between SEO companies and non SEO companies in the period prior to SEO. The indications of earnings management inthe event of SEO is found in a small numbers of companies.Keywords: Seasoned Equity Offerings, Right Issue, Earnings Management, and Jakarta Stock Exchange

Does the Bullwhip Matter Economically? A Cross-Sectional Firm-Level Analysis

This paper investigates whether the bullwhip has economic consequences at the firm level. In particular, we examine the relation between the bullwhip and various accounting/financial performance measures including equity returns, cash flows, earnings, and earnings attributes such as earnings quality and earnings persistence, using a large panel of cross-sectional firm-level data. Performance is measured both in terms of first-moment mean effects and second-moment volatility effects. Contrary to the maintained assumption of economics and operations management scholars, our analysis yields results that are inconsistent with the notion that the bullwhip has significant negative economic consequences at the firm level. In particular, we find almost no significant statistical/economic relations between accounting/financial measures of profitability and the bullwhip, both with and without covariate controls.

Seasoned Equity Offerings, Earnings Transparency and Corporate Governance

Seasoned Equity Offerings, Earnings Transparency and Corporate Governance