Earnings Persistence Research Articles

Does More Frequent Financial Reporting Bring the Future Forward?

SYNOPSIS Exploring mandatory financial reporting frequency changes in the United States from 1954 to 1972, we find that a mandatory increase in reporting frequency is associated with an increase in firms’ future earnings response coefficients. This effect is stronger for firms with higher sales seasonality or operating in industries with lower earnings persistence and for firms that provide more voluntary disclosures of forward-looking information after the reporting frequency increase. We also find that investors increase (decrease) the weight on long-term (near-term) earnings when pricing the firm after the reporting frequency increase. Our findings suggest that more frequent mandatory reporting can enhance the ability of investors to predict future earnings by providing additional useful information on future earnings and by triggering more voluntary disclosures. Our study informs the ongoing policy debates on mandatory financial reporting frequency by highlighting the informational benefit of frequent financial reporting for investors. Data Availability: Data are available from public sources identified in the paper. JEL Classifications: G14; M41; M48.

THE EFFECT OF INVESTMENT OPPORTUNITY SET (IOS), EARNINGS PERSISTENCE, AND FIRM SIZE ON EARNINGS QUALITY WITH INFORMATION ASYMMETRY AS A MODERATING VARIABLE

This study examines the effect of investment opportunity set (IOS), earnings persistence, and firm size on earnings quality with information asymmetry as a moderating variable. The primary impetus for this study was the number of instances of financial statement manipulation, which indicated that the firm's earnings quality was low and earnings information was subject to change. In 2020-2022, the sample consisted of as many as 15 infrastructure firms listed on the IDX, selected using purposive sampling. This study employed multiple linear regression analysis, and moderated regression techniques to analyze the data. The results of this study showed that earnings quality was unaffected by the investment opportunity set (IOS) and earnings persistence. Meanwhile, the firm size did affect the earnings quality. According to the results of moderated regression analysis (MRA), information asymmetry did not reduce the effect of investment opportunity set (IOS), earnings persistence, and firm size on earnings quality.

Pengaruh Persistensi Laba, Solvabilitas, dan Variabel Lainnya terhadap Kualitas Laba

The purpose of this research is to obtain empirical evidence about whether earnings persistence, solvency, liquidity, profitability, audit committee, and commissioner independence as independent variables have an influence on earnings quality as the dependent variable. This research used 210 data from 42 companies operating in the cyclical and non cyclical sectors that listed on Indonesian Stock Exchange for the period 2015 to 2022. The research method used in this research is the purposive sampling method in selecting samples and used multiple regression for the data analysis. The result of this research shows that independent variables earnings persistence and profitability affect earnings quality. While other independent variables earnings persistence, liquidity, audit committee, and independent commissioner have no effect toward earnings quality. Companies tend to do earnings management to keep their profit stable and to increase their profitability so which could end up lowering the quality of earnings

Pengaruh Persistensi Laba, Konservatisme Akuntansi, Investment Opportunity Set dan Struktur Modal terhadap Kualitas Laba

This research aims to test the influence of earnings persistence, accounting conservatism, investment opportunity set and capital structure on earnings quality. The data source used in this research is secondary data using documentary data obtained from the official website of the Indonesian Stock Exchange. The sample used in this research was 88 data from property and real estate companies in 2019-2020 using purposive sampling. This research uses multiple linear regression analysis techniques. The regression results show that earnings persistence has a positive effect on earnings quality and investment opportunity set has a negative effect on earnings quality, while accounting conservatism and capital structure have no effect on earnings quality.

Peran Kepemilikan Manajerial dalam Hubungan Antara Tingkat Utang, Siklus Operasi, dan Ukuran Perusahaan Terhadap Persistensi Laba

This research aims to analyze the effect of debt level, operating cycle, and firm size on earnings persistence with managerial ownership as a moderating variable in consumer goods companies listed on the Indonesia Stock Exchange in 2020 – 2022. The data used in this study are data secondary with the sampling technique using purposive sampling based on certain criteria so that 53 companies were selected as research samples. Data analysis used multiple linear regression analysis using SPSS 25. The result showed that debt level and operating cycle had an effect on earnings persistence, while firm size had no effect on earnings persistence. Debt level, operating cycle, and firm size moderated by managerial ownership have no effect on earnings persistence.

DETERMINASI PERSISTENSI LABA: Peran Volatilitas Penjualan, Arus Kas Operasi, dan Tingkat Hutang pada Sektor Properti dan Real Estate di Indonesia

Profit persistence can be interpreted as the possibility that a company's profit level will repeat itself in the future. This study aims to determine the effect of sales volatility (X1), operating cash flow (X2) and debt levels (X3) on profit persistence (Y) in Properties and Real Estate companies listed on the Indonesia Stock Exchange for the 2017-2021 period. Sampling in this study used a purposive sampling technique and obtained 13 sample companies. The data analysis method used is quantitative data analysis, namely using panel data regression analysis and using the EViews 12 tool. The results of this study indicate that partially operating cash flow has an effect on earnings persistence. Meanwhile, sales volatility and debt levels partially have no effect on earnings persistence. Meanwhile, simultaneously sales volatility, operating cash flow and debt levels affect earnings persistence with an R2 contribution of 21.35%.

The Influence of Earnings Persistence on Financial Sustainability of Commercial Banks in Nigeria

The thought-provoking misdemeanour of some commercial banks nose-diving into a financial crisis, even after presenting seemingly good yearly performance reports, motivated this study. Thus, the study was carried out to examine the relationship between earnings persistence and the financial sustainability of commercial banks in Nigeria. This relationship was examined after controlling for leverage, interest rate and firm size of the commercial banks. The ex-post facto research design was adopted in the study. Data were obtained from the annual reports of 12 selected, listed commercial banks in Nigeria from 2012 to 2022. The multiple regression technique was used to test the hypothesis of the study. The results of the analysis revealed that there is a significant positive relationship between earnings persistence and the financial sustainability of commercial banks in Nigeria (t = 4.318, p = 0.000, p < 0.05). Based on this finding, it was recommended that commercial banks should strive to enhance their earnings persistence by increasing their operational efficiency.

The economic-based earnings persistence of earnings momentum and its market implications

PurposePrior research on meeting or beating earnings thresholds documents that firms with earnings momentum are awarded with valuation premiums. However, it is unclear from this strand of literature why this is the case. Therefore, this study aims to investigate the effects of time-varying earnings persistence on earnings momentum and their pricing effects.Design/methodology/approachThis study exploits a firm that reports earnings momentum as research setting to examine whether earnings persistence is significantly higher for firms with consecutive earnings increases. In addition, it investigates a relation between earnings momentum and fundamentals-driven earnings persistence and estimates return associations of earnings momentum conditional on economic-based persistence of earnings.FindingsThe empirical evidence suggests that firms with earnings momentum reflect higher time-varying earnings persistence. It further reveals that longer duration of earnings momentum is associated with higher fundamentals-driven earnings persistence. More importantly, valuation premiums are exclusively assigned to earnings momentum determined by strong firm fundamentals, not momentum itself.Originality/valueThis study provides new empirical evidence that valuation premiums accrued to firms with earnings momentum are conditional on time-varying earnings persistence. The research implications are relevant to investors, regulators and auditors, as the results bring conclusions that earnings momentum reflects successful business models not poor accounting quality. This leads to a more complete view of earnings momentum and helps allocate resources when evaluating earnings-momentum firms.

The effect of tax avoidance on earnings persistence: evidence from China

PurposeThe purpose of this paper is to investigate the relationship between tax avoidance and earnings persistence in the light of a developing economy, with the main focus on China.Design/methodology/approachIn the analysis, the author conducts a survey on the tax avoidance situation of Chinese listed companies from 2012 to 2020. Then, a multivariate regression analysis is performed in order to analyse the relationship between corporate tax avoidance and earnings persistence.FindingsThe findings of the present study show that tax avoidance has a significant positive effect on earnings persistence. However, when the degree of tax avoidance is high, the “risk effect” of tax avoidance exceeds the “value effect”, and tax avoidance will reduce the persistence of earnings. This conclusion is even more prominent when the company is non-state-owned. Further research shows the increase of institutional investors’ shareholding ratio can improve “value effect” of tax avoidance, lessen “risk effect” of tax avoidance, and positively affect the relationship between tax avoidance and earnings persistence.Practical implicationsThis study provides evidence for investors to understand the dual effect of tax avoidance on earnings persistence. The results may have implications for regulatory bodies. They can provide a better understanding of the corporate governance role of institutional investors in curbing opportunistic tax avoidance.Originality/valueThis study enriches the research on tax avoidance effects by analysing the impact of tax avoidance on earnings persistence. This study also compensates for the shortcomings of analysing earnings persistence mainly from the perspective of tax differences in the past, and promotes the study of the corporate governance effects of institutional investors under different levels of tax avoidance.

Impact of Government Outsourcing Contracts on High-Tech Vendors: An Empirical Study

ABSTRACT Outsourcing is an important strategic decision of high-tech firms. However, while the research has extensively studied the implications of outsourcing to high-tech clients, its impact on high-tech vendors remains underexplored. This study empirically estimates the impact of government outsourcing contracts on high-tech vendors. Employing the earnings-return analyses framework, we find that, for high-tech vendors engaged in government outsourcing contracts, the stock market places a higher value on each unit of unexpected earnings compared to other firms. Additionally, this impact becomes stronger for contracts with longer terms, for contracts outsourced by the U.S. government or by countries with better political and economical stability. We obtain causal evidence through difference-in-differences (DID) analyses of high-tech firms’ initiations of government contracts. Mechanism analyses uncover two primary drivers behind this impact: increased persistence of future earnings and improved alignment between accrual earnings and cash flows. Overall, our research indicates that when valuing high-tech firms, the stock market incorporates information from supply-chain networks, especially that related to government customers. Our results underscore the importance of obtaining government outsourcing contracts for high-tech firms’ managers. Becoming a vendor to the government helps a high-tech firm reduce the uncertainty faced by its outside investors, who in turn value the high-tech firm’s earnings to a greater extent.

Pengaruh Capital Intensity, Persistensi Laba dan Risiko Litigasi terhadap Konservatisme Akuntansi pada Perusahaan di Bidang Kesehatan yang Terdaftar di Bursa Efek Indonesia

This study aims to analyze the effect of capital intensity, earnings persistence and litigation risk on accounting conservatism. The research population consists of companies in the health sector listed on the Indonesia Stock Exchange in 2020-2022. With the purposive sampling method, a sample of 16 companies or 48 observation data was obtained. The analysis method used is multiple linear regression analysis using the SPSS Statistics 25 program. The results of this study indicate that the capital intensity variable and litigation risk have no effect on accounting conservatism. Meanwhile, earnings persistence affects accounting conservatism.

How Qualified is The Company’s Earning Quality: a Study of The 100 Most Liquid Indonesian Companies

Investor behavior can be reflected in the market price. Market price movement have strong correlation with market perspective about company earnings. Market does not always positively react to high earnings information, but should be high quality of earnings. High quality earnings can reflect the company's actual financial condition, which useful for investment decision making for investors, and determine business strategies for companies. The aim of this study is to obtain empirical evidence regarding the effect of earnings persistence, liquidity, growth opportunity, profitability, and capital structure toward earnings quality. The objects in this study are companies included in the Kompas100 Index, index that ranks 100 companies with the highest liquidity, consecutively during 2018-2020. Secondary data used was obtaining from financial reports and analyzed using multiple linear regression equations. This research found that companies which can generate profit from their main operation, not from foreign exchange or other income supposed to be companies with high quality earnings. Moreover, business strategic that such as market expansion, differentiation even though in the early stage judge can improve quality of earnings.

A single-step firm-level identification of classification shifting

PurposeThis study proposes a new model to measure unexpected core earnings, using Bayesian dynamic latent method.Design/methodology/approachThe Bayesian dynamic latent modeling approach identifies the effects that stem from complex, multidimensional variables related to culture and legal framework, on unexpected core earnings. It also allows testing whether there is persistence over time in unexpected core earnings. We use sequential Bayesian Monte Carlo methods, also known as particle filtering, that simplify estimations.FindingsIn an international empirical application, we find evidence of persistence in unexpected core earnings as well as classification shifting. The impact of the legal framework on classification shifting shows variability across samples. Religion reduces classification shifting, whereas the cultural variables of power distance, masculinity and uncertainty avoidance enhances it. Interestingly, the persistence in unexpected core earnings is strong and moderates the ability of legal framework and religion in abating classification shifting.Research limitations/implicationsIn terms of policy implications, we show that strengthening legal framework would improve financial reporting and reduce the scope for manipulation. This could involve stricter enforcement mechanisms, increased penalties for non-compliance and regular audits to detect and deter classification shifting practices. Given that religion plays a role in moderating classification shifting, policymakers may explore partnerships or collaborations with religious institutions to promote ethical financial practices. Engaging religious leaders and organizations can help emphasize the importance of integrity and ethical behavior in financial reporting, potentially influencing the behavior of individuals and organizations.Originality/valueTo the best of our knowledge this is the first study that opts for Bayesian dynamic latent model for an international sample.

Pengaruh Persistensi Laba dan Earning Growth Terhadap Kualitas Laba dengan Corporate Governance Sebagai Variabel Moderasi

Income fluctuations cause profit instability, so that the reliability of financial report information is questioned by stakeholders. The aim of this research is to obtain empirical evidence about the influence of earnings persistence and earnings growth on earnings quality with the corporate governance as a moderating variable in companies participating in the CGPI program and listed on the BEI for the 2017-2021 period. The research population consisted of 161 corporate entities and 17 sample companies were selected that met the research criteria for the purposive sampling method. Data processing using the panel data regression method with the Eviews-12 statistical tool. The research results indicate that earnings persistence has a negative effect on earnings quality, while earnings growth has a positive effect on earnings quality. In addition, it was found that corporate governance does not moderate the effect of earnings persistence on earnings quality, but the effect of earnings growth on earnings quality can be moderated by corporate governance.

Does short selling reduce classification shifting?—— Exploration of market-oriented governance mechanism

We empirically investigate the impact of short selling on classification shifting, exploiting the staggered lift of short-sale bans in China. Using a multi-period difference-in-difference research design, we find that the lift of short-sale bans mitigates the classification shifting. We also find that short selling alleviates the market's overpricing of the core earnings of firms engaging in classification shifting, thus reducing the expected benefits and motivations of firms for classification shifting. Further research shows that short selling has a more significant inhibitory effect on classification shifting in regions with developed financial intermediaries and it improves the persistence of core earnings.

THE INFLUENCE OF OPERATIONAL CASH FLOW, LEVELS OF DEBT, AND FIRM SIZE ON EARNINGS PERSISTENCE (EMPIRICAL STUDY OF PROPERTY AND REAL ESTATE COMPANIES LISTED ON THE INDONESIA STOCK EXCHANGE, 2019-2021)

This study aims to examine the effect of Operational Cash Flow, Debt Level and Firm Size on Earnings Persistence. The population used in this research is all Property and Real Estate Companies on the Indonesia Stock Exchange (IDX) in 2019-2021. The sample in this study was 36 units using purposive sampling method. Testing the hypothesis in this study using multiple linear regression analysis using SPSS version 26. The results of this study indicate that Operational Cash Flow and Firm Size have a significant positive effect on earnings persistence, while the level of debt has no significant effect on earnings persistence and. Operational Cash Flow, Debt Level and Firm S simultaneously have a significant effect on earnings persistence.
 
 Keywords: Earning Persistence, Operating Cash Flow, Debt Level and Firm Size

The Effect of Earnings Persistence and Capital Structure on Earnings Response Coefficient in Indonesia Stock Exchange

This study managed to investigate the effect of earnings persistence and leverage on the Earnings Response Coefficient (ERC) in companies listed on the Indonesia Stock Exchange. Based on the annual report data of 265 companies from 2011 to 2021, we show that earnings persistence has a significant and positive impact on ERC, while leverage has a limited impact on ERC. Further findings demonstrate that higher investor sentiment could lead to a larger impact of earnings persistence on ERC. These results imply that, as high earning quality Attracts high investor sentiment in the trading stock, great news can be processed into the price quickly and the price rises in a short period, while bad news could also lead to immediate price corrections with investors’ attention. Thus, we find that a positive relationship between ROE and ERC, and investor sentiment helps strengthen the relationship. Our study adds the studies on price resilience and expands the understanding of the Indonesia Stock Exchange’s features.

Using inverse DEA and machine learning algorithms to evaluate and predict suppliers’ performance in the apple supply chain

In an era where sustainability is paramount, this study presents a novel analytical framework that uses inverse data envelopment analysis (IDEA) and machine learning to optimize supplier performance in Apple's supply chain. We introduce the application of IDEA to recalibrate operational benchmarks, focusing on substantial CO2 reduction, and couple this with advanced predictive algorithms to proactively steer supplier practices toward Apple's sustainability targets. The study systematically simulates scenarios to achieve 30%–50% CO2 cuts, setting a precedent for environmental strategy integration. Beyond environmental metrics, our approach rigorously evaluates economic indicators such as earnings persistence and market recognition, providing a holistic view of supplier viability. The research employs machine learning, notably random forest and k-Nearest neighbors, to distill unbiased insights from historical data, ensuring precise, objective supplier assessments. Our findings offer a strategic blueprint for corporations and supply chain stakeholders aiming to embed sustainability into their operational ethos, supported by data-centric decision-making. These methodologies and insights contribute valuable perspectives to sustainable supply chain management and predictive analytics discourse. Finally, the study offers guidance on implementing CO2 reduction strategies and evaluating suppliers' economic performance, aligning with Sustainable Development Goals (SDGs) objectives.

Bankruptcy in the UK: Do Managers Talk the Talk Before Walking the Walk?

AbstractThis study examines whether managers employ annual report textual disclosures as a conduit to communicate the probability of future corporate bankruptcy or to intentionally mislead stakeholders owing to impression management incentives. We conduct various examinations around the information content of the tone conveyed by textual disclosures in unstructured UK annual reports and the probability of corporate bankruptcy. We document that firms that communicate a more net positive tone are associated with lower bankruptcy risk. Importantly, this association is found to be stronger for firms whose managers have a lower incentive to mislead investors owing to better board monitoring, stringent stock market regulation, and Big 4 audits. We also offer complementary evidence that firms conveying a more net positive tone exhibit higher future performance and earnings persistence, and lower future performance volatility. These firms are also less likely to exhibit extreme corporate policies and to receive a qualified auditor's opinion. Overall, this study sheds light on whether managers tend to inform or misinform (bury their heads in the sand) about corporate bankruptcy.

Earnings predictability or truthfulness? Which one investors care more about

Purpose This study aims to investigate the impact of earnings predictability and truthfulness on nonprofessional investors’ investment willingness. Design/methodology/approach Earnings predictability is captured by quarterly earnings autocorrelation, and earnings truthfulness is indicated by real earnings management (REM). The average of investment attractiveness and willingness measures investment willingness. The authors use experiments to isolate the impact of quarterly earnings autocorrelation and REM on investors’ investment behaviors. Findings From the 2 × 2 design, the authors observe that investors weight more on earnings predictability than earnings truthfulness. Research limitations/implications The generalization of the findings may be constrained for the following reasons. First, the authors use only one proxy, REM, to measure earnings truthfulness. In addition, the authors provide the participants, Amazon Mechanical Turk, with earnings predictability. Results may no longer hold if each participant has different understanding and analysis of earnings predictability. Practical implications In periods of unprecedented and severe financial uncertainty (i.e. the COVID-19 pandemic), investors rely more on earnings predictability than on earnings truthfulness. The study assists managers to strategically emphasize the predictability of earnings to attract investors, especially when firms face financial challenges or uncertainty. Social implications This study contributes to understanding investor behavior and the critical role of earnings predictability and truthfulness in shaping investment decisions. Originality/value This paper contributes to the literature of earnings properties in financial reporting, particularly by shedding light on the nuanced interplay between earnings predictability and earnings truthfulness. The research also demonstrates that elevated earnings autocorrelation indirectly stimulates investment willingness by enhancing the investors’ perception of earnings persistence of targeted firms.