Earnings Movements Research Articles

PROFITABILITY IS NOT A CONSIDERATION FOR INVESTORS IN INDONESIAN BANKING SHARES

Objective – This research aims to analyze the effect of profitability on share prices. Design/Methodology/Approach – Sample is a go bank public on the Indonesian Stock Exchange. The type of data used is quantitative data. Quantitative data in the form of stock price data, earnings per share, return on assets, and return on equity. The data source for this research is secondary data from bank financial reports for 2018-2021 from the Indonesian Stock Exchange. The sample in this research was 26 banks that fell into the purpose sampling category. The method used in this research is multiple linear regression analysis with SPSS version 26 software. Findings – The results of this research analysis show that profitability as measured using ROA and ROE does not have a significant effect on share prices. Likewise, it was concluded that EPS had no significant effect on share prices. However, together ROA, ROE and EPS have a significant influence on share prices. Conclusion and Implications – In the 2018-2021 period, Indonesian banking share prices are not determined by movements in earnings per share, return on equity and return on assets due to the impact of the Covid-19 pandemic, which means the majority of investors tend to wait for the pandemic to end to make investment decisions.

Making investment decisions using XBRL filing data

PurposeThe Securities Exchange Commission mandated eXtensible Business Reporting Language (XBRL) filing data provide immediate availability and easy accessibility for both academics and practitioners. To be useful, this data should provide information for decisions, specifically, investment decisions. The purpose of this study is to examine whether the XBRL database can be used with models, developed in previous studies, predicting the directional movement of earnings. The study does not attempt to examine the validity of these models, but only the ability to use the data in the analysis of financial statements based on these models.Design/methodology/approachThe study analyzes New York Stock Exchange companies’ XBRL data using a two-step logistic regression model. The model is then used to arrive at the directional movement of earnings between current and subsequent quarters. Additional models are created by dividing the sample into industry membership.FindingsThe results classified companies as realizing an increase or a decrease in earnings. The final model indicated a significant ability to predict earnings changes, on average about 65 per cent of the time, for the entire model, and 71 per cent, for the industry-based models (higher than those of previous studies based on COMPUSTAT). The investment strategy created average quarterly return between 2.8 and 10.7 per cent.Originality/valueThe originality of this study is in the way it examines the quality of XBRL data, by examining whether findings from prior research which relied on traditional databases (such as COMPUSTAT) still hold using XBRL data. The use of XBRL allows not only easier and less-costly access to the data but also the ability to adjust the models almost immediately as current information is posted, thus providing a much more relevant tool for investors, especially small investors.

The Prediction of Earnings Movements Using Accounting Data: Using XBRL

The usefulness of accounting information as a basis for a profitable investment strategy is an important issue. The objective of this study is to repeat the original Ou et al. study using the XBRL database, standardized financial reporting system required by the SEC. The study analyzes XBRL quarterly data, from the first quarter of 2011 to the fourth quarter of 2015, using a two-step Logit regression model to determine the variables to be included in the prediction model. The prediction model was then used to arrive at the probability of the directional movement of earnings between the current quarter and the subsequent quarter. The results of the final models' indicated a significant ability to predict subsequent earnings changes. The predictions appear to be correct on average about 72.4% of the time. However, these forecasts were not able to provide a basis for a profitable investment strategy.

OUP accepted manuscript

Previous research has shown considerable marriage premiums in earnings for men, but often penalties for women of being in a union. In this study we extend this research by analyzing how the age difference between spouses affects the earnings profiles by gender. As we follow people over time in advance as well as within their marriage, we can separate premarital from postmarital earnings movements. The data consist of information on annual earnings 1990–2009 for all Swedes born 1960–1974 (N = 926,219). The results indicate that age homogamy is related to higher earnings for both men and women, and that larger age differences are generally associated with lower union premiums, quite independently of which spouse is older. However, most of these results are explained by assortative mating, in which men and women with greater earnings potentials find partners of a similar age. Overall, the age difference between spouses seems to have a limited causal effect, if any, on individual earnings. (Less)

Are foreign earnings disclosures value-relevant?: Disaggregation solves the puzzle

This study examines whether foreign region- and country-specific performance disclosures relate differentially to shareholder wealth compared to domestic performance disclosures. Bearing in mind the fact that, in previous literature, empirical findings regarding the value-relevance of geographic performance disparities have been surprisingly conflicting and puzzling, we question in this paper prior sample selection procedures and data treatments. Using an extensive international company-level database, we distinguish between foreign ‘region-’ and ‘country-’specific performance disclosures and find that (1) the use of disaggregated foreign earnings information increases significantly the precision and significance of the value-relevance of foreign performance; (2) the disclosure of positive earnings movements generated in Latin American countries has a consistently negative value impact and (3) the value-relevance of foreign segment disclosures is particularly perceptible for Asian Pacific countries and the United Kingdom, confirming the attractiveness of these areas for foreign direct investment.

Are Foreign Earnings Disclosures Value-Relevant? Disaggregation Solves the Puzzle

This study examines whether foreign region- and country-specific performance disclosures relate differentially to shareholder wealth compared to domestic performance disclosures. Bearing in mind the fact that, in previous literature, empirical findings regarding the value-relevance of geographic performance disparities have been surprisingly conflicting and puzzling, we question in this paper prior sample selection procedures and data treatments. Using an extensive international company-level database, we distinguish between foreign ‘region-’ and ‘country-’specific performance disclosures and find that (1) the use of disaggregated foreign earnings information increases significantly the precision and significance of the value-relevance of foreign performance; (2) the disclosure of positive earnings movements generated in Latin American countries has a consistently negative value impact and (3) the value-relevance of foreign segment disclosures is particularly perceptible for Asian Pacific countries and the United Kingdom, confirming the attractiveness of these areas for foreign direct investment.

The Nature of Countercyclical Income Risk

We study business cycle variation in individual earnings risk using a confidential and very large data set from the US Social Security Administration. Contrary to past research, we find that the variance of idiosyncratic shocks is not countercyclical. Instead, it is the left-skewness of shocks that is strongly countercyclical: during recessions, large upward earnings movements become less likely, whereas large drops in earnings become more likely. Second, we find that the fortunes during recessions are predictable by observable characteristics before the recession. Finally, the cyclicality of earnings risk is dramatically different for the top 1 percent compared with the rest of the population.

The Nature of Countercyclical Income Risk

This paper studies the nature of business cycle variation in individual earnings risk using a dataset from the U.S. Social Security Administration, which contains (uncapped) earnings histories for millions of anonymous individuals. The base sample is a nationally representative panel containing 10 percent of all U.S. males from 1978 to 2010. We use these data to decompose individual earnings growth during recessions into 'between-group' and 'within-group' components. We begin with the behavior of within-group shocks. Contrary to past research, we do not find the variance of idiosyncratic earnings shocks to be countercyclical. Instead, it is the left-skewness of shocks that is strongly countercyclical. That is, during recessions, the upper end of the shock distribution collapses--large upward earnings movements become less likely--whereas the bottom end expands--large drops in earnings become more likely. Thus, while the dispersion of shocks does not increase, shocks become more left skewed and, hence, riskier during recessions. Second, to study between-group differences, we group individuals based on several observable characteristics at the time a recession hits. One of these characteristics--the average earnings of an individual at the beginning of a business cycle episode--proves to be an especially good predictor of fortunes during a recession: prime-age workers that enter a recession with high average earnings suffer substantially less compared with those who enter with low average earnings (such 'asymmetry' is not evident in expansions). Finally, we find that the cyclical nature of earnings risk is dramatically different for the top 1 percent compared with all other individuals--even relative to those in the top 2 to 5 percent.

The Nature of Countercyclical Income Risk

This paper studies the nature of business cycle variation in individual earnings risk using a dataset from the U.S. Social Security Administration, which contains (uncapped) earnings histories for millions of anonymous individuals. The base sample is a nationally representative panel containing 10 percent of all U.S. males from 1978 to 2010. We use these data to decompose individual earnings growth during recessions into and components. We begin with the behavior of within-group shocks. Contrary to past research, we do not find the variance of idiosyncratic earnings shocks to be countercyclical. Instead, it is the left-skewness of shocks that is strongly countercyclical. That is, during recessions, the upper end of the shock distribution collapses--large upward earnings movements become less likely--whereas the bottom end expands--large drops in earnings become more likely. Thus, while the dispersion of shocks does not increase, shocks become more left skewed and, hence, riskier during recessions. Second, to study between-group differences, we group individuals based on several observable characteristics at the time a recession hits. One of these characteristics--the average earnings of an individual at the beginning of a business cycle episode--proves to be an especially good predictor of fortunes during a recession: prime-age workers that enter a recession with high average earnings suffer substantially less compared with those who enter with low average earnings (such asymmetry is not evident in expansions). Finally, we find that the cyclical nature of earnings risk is dramatically different for the top 1 percent compared with all other individuals--even relative to those in the top 2 to 5 percent.

The cyclicality of effective wages within employer–employee matches in a rigid labor market

This study analyzes real wage cyclicality for male full-time workers within employer–employee matches in Germany over the period 1984–2004. Five different wage measures are compared: the standard hourly wage rate; hourly wage earnings including overtime and bonus pay; the effective wage, which takes into account unpaid overtime; and monthly earnings, with and without additional pay. None of the hourly wage measures exhibits cyclicality except for the group of salaried workers with unpaid overtime. Their effective wages show a strongly procyclical reaction to changes in unemployment. Despite acyclical wage rates, salaried workers without unpaid overtime experienced procyclical earnings movements if they had income from extra pay. Monthly earnings were also procyclical for hourly paid workers with overtime pay. These findings suggest that cyclical earnings movements are generated by variable pay components, such as bonuses and overtime pay, and by flexible working hours. The degree of earnings procyclicality revealed for the German labor market is comparable to the United States.

The Cyclicality of Effective Wages within Employer-Employee Matches in a Rigid Labor Market

This study analyzes real wage cyclicality for male full-time workers within employer-employee matches in Germany over the period 1984-2004. Five different wage measures are compared: the standard hourly wage rate; hourly wage earnings including overtime and bonus pay; the effective wage, which takes into account unpaid overtime; and monthly earnings, with and without additional pay. None of the hourly wage measures exhibits cyclicality except for the group of salaried workers with unpaid overtime. Their effective wages show a strongly procyclical reaction to changes in unemployment. Despite acyclical wage rates, salaried workers without unpaid overtime experienced procyclical earnings movements if they had income from extra pay. Monthly earnings were also procyclical for hourly paid workers with overtime pay. These findings suggest that cyclical earnings movements are generated by variable pay components, such as bonuses and overtime, and by flexible working hours. The degree of earnings procyclicality revealed for the German labor market is comparable to the United States.

The distribution of income over life: an empirical approach

The aim of the present work is to provide new findings looking at the direct link between age and the distribution of earnings. In particular, it studies the general movement of earnings of individuals with their age using different econometric models and panel techniques which explain the relationship between age and earnings. Inequality measures based only on cross-sectional income do not adequately reflect lifetime income inequality. Cohort data for different age groups in Spain over the years 1993 to 2000 are considered using data from the European Community Household Panel (ECHP). The evidence obtained suggests that there exists a strong influence between earnings and age.

Trade Liberalization and the Evolution of Skill Earnings Differentials in Brazil

Skilled labor earnings di¤erentials decreased during the trade liberalization implemented in Brazil from 1988 to 1995. This paper investigates the role of trade liberalization in explaining these relative earnings movements. We perform several independent empirical exercises that check the traditional trade transmission mechanism, using disaggregated data on tariffs, prices, wages, employment and skill intensity. We find that: i) employment shifted from skilled to unskilled intensive sectors, and each sector increased its relative share of skilled labor; ii) relative prices fell in skill intensive sectors; iii) tariff changes across sectors were not related to skill intensities, but the pass-through from tari¤s to prices was larger in skill intensive sectors; iv) the decline in skilled earnings differentials mandated by the price variation predicted by trade is very close to the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil.

Trade liberalization and the evolution of skill earnings differentials in Brazil

Skilled labor earnings differentials decreased during the trade liberalization implemented in Brazil from 1988 to 1995. This paper investigates the role of trade liberalization in explaining these relative earnings movements. We perform several independent empirical exercises that check the traditional trade transmission mechanism, using disaggregated data on tariffs, prices, earnings, employment and skill intensity. We find that: i) employment shifted from skilled to unskilled intensive sectors, and each sector increased its relative share of skilled labor; ii) relative prices fell in skill-intensive sectors; iii) tariff changes across sectors were not related to skill intensities, but the pass-through from tariffs to prices was larger in skill-intensive sectors; iv) the decline in skilled earnings differentials mandated by the price variation predicted by trade was even larger than the observed one. The results are compatible with trade liberalization accounting for the observed relative earnings changes in Brazil. They also highlight the importance of considering the effects of differentiated pass-through from tariffs to prices.

The prediction of earnings movements using accounting data: An update and extension of Ou and Penman

The greater interest apparent in the recent academic literature in the impact of corporate earnings information on the valuation of shares has prompted an updating of the seminal work of Ou and Penman (1989) on the role that accounting information can play in predicting future movements in earnings relative to expectations. The Ou and Penman analysis has also been extended by considering two measures of expectations; by covering a more recent time period; by encompassing the UK and Australian markets in addition to the US market; and by applying a new methodology for developing the forecasting models. The study found that a model based on accounting information retains merit as a means of forecasting movements in trend-adjusted earnings, but that these forecasts no longer provide the basis for a profitable investment strategy. The models used to forecast earnings surprise gave mixed results, but nonetheless, some of the resulting investment strategies were consistently profitable.

‘The prediction of earnings movements using accounting data: An update and extension of Ou and Penman’ — A response

‘The prediction of earnings movements using accounting data: An update and extension of Ou and Penman’ — A response

The Cyclicality of Real Wages within Employer-Employee Matches

Using data from the Panel Study of Income Dynamics, the author examines the cyclicality of wages within employer-employee matches for the years 1970-91. Recent research on wage cyclicality has suggested that wages are very procyclical (tending to rise and fall with economic upturns and downturns), even for workers who remain with the same employer. The author finds, however, that the evidence for wage procyclicality within the matches he examines is rather weak except for the small group of workers who were paid by piece rate or commissions. Despite having acyclical wage rates, men who were paid hourly had earnings movements that were very procyclical. Salaries exhibited little cyclicality, but salaried workers who had income sources from bonuses, commissions, or overtime had procyclical earnings. The results suggest that the increasing prevalence of incentive-based pay will increase the procyclicality of wages within matches.

The Cyclicality of Real Wages within Employer-Employee Matches

Using data from the Panel Study of Income Dynamics, the author examines the cyclicality of wages within employer-employee matches for the years 1970–91. Recent research on wage cyclicality has suggested that wages are very procyclical (tending to rise and fall with economic upturns and downturns), even for workers who remain with the same employer. The author finds, however, that the evidence for wage procyclicality within the matches he examines is rather weak except for the small group of workers who were paid by piece rate or commissions. Despite having acyclical wage rates, men who were paid hourly had earnings movements that were very procyclical. Salaries exhibited little cyclicality, but salaried workers who had income sources from bonuses, commissions, or overtime had procyclical earnings. The results suggest that the increasing prevalence of incentive-based pay will increase the procyclicality of wages within matches.

Do women earn higher returns to tenure than men? Evidence from the new earnings survey

This paper examines the effect of tenure on the earnings of men and women in the UK labour market. Most comparisons of male and female earnings have concentrated on examining spot differentials, which give no information on earnings movements over tenure. Simple human capital theory would suggest that the effect of tenure would be less pronounced for women, as their shorter average attachments to the labour market allow less opportunity for human capital accumulation. Contrary to this prediction, the results show a higher return to tenure for women. Several explanations are provided as to why this is the case.

Calculating Net Discount Rates: It's Time To Recognize Structural Changes

Abstract No abstract available.