Accrued Earnings and Growth: Implications for Earnings Persistence and Market Mispricing

Fairfield, Patricia M.; Whisenant, Scott; Yohn, Teri Lombardi

doi:10.2139/ssrn.249311

Cited by 24 publications

(26 citation statements)

References 18 publications

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“…8 Fourth, the DCA estimates are biased by unusually high IPO-firm growth and by the use of IPO proceeds. IPO firms undergo unusual growth in production and sales, causing unusual growth in optimal working capital levels, which mechanically causes positive accruals (Fairfield et al, 2003). Further, pre-IPO funding constraints most likely have caused sub-optimal working capital levels.…”

Section: Introductionmentioning

confidence: 99%

“…Subtracting the change in receivables ensures a mechanical effect of growth on the discretionary accrual estimates. Fairfield et al (2003) show that accruals are correlated with growth for firms in general, but the unusually high growth associated with IPOs requires unusual care.…”

mentioning

confidence: 97%

“…Xie (2001) concludes this is primarily due to the discretionary component of accruals. Fairfield et al (2003) and Desai et al (2004) conclude the anomaly is a manifestation of the well-known growth-value anomaly, not of investors failing to undo earnings management. but not earnings).…”

mentioning

confidence: 98%

See 2 more Smart Citations

Earnings quality at initial public offerings

Ball

Shivakumar

2008

Journal of Accounting and Economics

477

154

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Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 97%

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Earnings quality at initial public offerings

Ball

Shivakumar

2008

Journal of Accounting and Economics

477

154

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“…This author explores the accounting liquidity and accounting returns relationship for a business, elaborating a theory on working capital that postulates that accounting profitability would be a function of the ratio between One important aim of Accounting and Finance research is to provide elements that allow for improved analysis of financial reports, predictability of firms' future results (Fairfield, Whisenant, & Yohn, 2001), and ultimately help in agent decision making.…”

Section: Introductionmentioning

confidence: 99%

“…As argued by Fairfield et al (2001), as well as in Hirshleifer et al (2004), these failures in the complete evaluation of information indicate market inefficiency in evaluating what would be good or bad news associated with risk and with expected company performance and that of their shares.…”

Section: Introductionmentioning

confidence: 99%

Return and Liquidity Relationships on Market and Accounting Levels in Brazil

Perobelli

Famá

Sacramento

2016

Rev. contab. finanç.

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This article discusses profitability-liquidity relationships on accounting and market levels for 872 shares of publicly-traded Brazilian companies, observed between 1994 and 2013. On the market level, the assumption is that share liquidity is able to reduce some of the risks incurred by investors, making them more willing to pay a higher price for liquid shares, which would lower expected market returns. On the accounting level, the basic hypothesis argues that a firm's holding more liquid assets is related to a conservative investment policy, possibly reducing accounting returns for shareholders. Under the assumption of financial constraint, however, more accounting liquidity would allow positive net present value investments to be carried out, increasing future accounting returns, which would positively affect market liquidity and share prices in an efficient market, resulting in a lower market risk/expected return premium. Under the assumption of no financial constraint, however, more accounting liquidity would only represent a carry cost, compromising future accounting returns, which would adversely affect market liquidity and share prices and result in a higher market risk/expected return premium. Among the hypotheses, the presence of a negative market liquidity premium was verified in Brazil, with shares that traded more exhibiting a higher expected market return. On the margins of the major theories on the subject, only two negative relationships between excess accounting liquidity and market liquidity and accounting return, supporting the carry cost assumption for financially unconstrained firms, were verified. In terms of this paper's contributions, there is the analysis, unprecedented in Brazil as far as is known, of the relationship between liquidity and return on market and accounting levels, considering the financial constraint hypothesis to which the firms are subject.

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Persistencia y capacidad predictiva de márgenes y rotaciones. un análisis empírico

Monterrey

Sánchez-Segura

2011

Revista de Contabilidad

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Accrued Earnings and Growth: Implications for Earnings Persistence and Market Mispricing

Cited by 24 publications

References 18 publications

Earnings quality at initial public offerings

Earnings quality at initial public offerings

Return and Liquidity Relationships on Market and Accounting Levels in Brazil

Persistencia y capacidad predictiva de márgenes y rotaciones. un análisis empírico

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