The Role of Revenue in Firm Valuation

Chandra, Uday; Ro, Byung T.

doi:10.2308/acch.2008.22.2.199

Cited by 73 publications

(46 citation statements)

References 36 publications

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“…As an indicator of the higher revenue persistence, they reveal higher autocorrelation for revenue changes than for expense changes. Chandra and Ro (2008) argue that revenue is more homogeneous and not as easily influenced by managers. The greater persistence of revenue is lost when it is aggregated with gains, losses, and expenses into earnings.…”

Section: Related Literaturementioning

confidence: 97%

Co-movement of revenue: structural changes in the business cycle

Erdorf

Heinrichs

2011

Financ Mark Portf Manag

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The co-movement of revenue growth across different industries changes over the business cycle. Using a large sample of quarterly firm revenues, aggregated to industry data from 1969 to 2009, we demonstrate that the correlation is the highest during a crisis. Our findings of structural changes in correlation have implications for diversification decisions in portfolio analysis and risk management. The higher correlation in crisis periods increases the downside risk and bankruptcy probability of business portfolios. We test the hypothesis that average correlations are significantly different, by applying permutation and bootstrap techniques. As robustness checks, both correlations between industries and the aggregate market and correlations between earnings confirm our findings.

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Section: Related Literaturementioning

confidence: 97%

Co-movement of revenue: structural changes in the business cycle

Erdorf

Heinrichs

2011

Financ Mark Portf Manag

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“…Further, they show that revenue surprises aid investors in identifying cases of earnings management as firms that barely meet analyst earnings forecasts, but have a negative revenue surprise, experience negative market reactions. Finally, Chandra and Rao () report that the value relevance of revenue increases and that of earnings declines for extreme quarterly earnings surprises. They attribute this result to a lower informativeness of earnings for extreme earnings surprises.…”

Section: Previous Literature and Hypothesis Developmentmentioning

confidence: 99%

Analyst revenue forecast reporting and the quality of revenues and expenses

Bilinski

Eames

2018

Business Fin & Account

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We decompose earnings quality into revenue and expense quality and examine their associations with analyst propensity to supplement their earnings forecasts with revenue forecasts. Analysts report more revenue forecasts to I/B/E/S when expense quality is low to compensate for the low accuracy of their earnings estimates, which has a positive association with expense quality. Expense quality is unassociated with revenue forecast accuracy, thus revenue forecasts become increasingly useful for valuing firms when expense quality is low. Analysts report fewer revenue forecasts when revenue quality is low because both earnings and revenue forecast accuracy decline as revenue quality deteriorates. To control for endogeneity, we use firm‐fixed effects to control for unobserved time‐invariant heterogeneity across firms, instrumental variables regressions and regression in changes.

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“…Prior literature also provides evidence that the market rewards or penalizes, respectively, firms that meet or beat, or miss both analyst earnings and revenue forecasts (Jegadeesh and Livnat [1]; Rees and Sivaramakrishnan [2]; Chandra and Ro [3]). This implies that market participants consider positive earnings surprises to be more persistent in the future when accompanied by positive revenue surprises.…”

Section: Likelihood Of Meeting or Beating Analyst Revenue Forecasts Dmentioning

confidence: 99%

“…Prior literature provides evidence that the market rewards significantly higher equity premiums for firms meeting or beating both analyst earnings and revenue forecasts, and conversely penalizes firms for missing them (Jegadeesh and Livnat [1]; Rees and Sivaramakrishnan [2]; Chandra and Ro [3]). Nelson et al [4] show that many attempts in earnings management to meet or beat market expectation involved revenue manipulation.…”

Section: Introductionmentioning

confidence: 99%

Achieving Revenue Benchmarks Conditional on Growth Properties

Son

Lim

2017

Sustainability

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This study examines whether certain firm characteristics, specifically growth properties, are associated with the likelihood of achieving market expectations for revenues, as well as which mechanism (revenue manipulation or expectation management) growth firms utilize in order to avoid missing these expectations. The results show that growth firms are more likely to meet or exceed analyst revenue forecasts than non-growth firms. We also find that growth firms are more inclined to manipulate their reported revenues upwards, and less inclined to guide market expectations for revenues downward, in order to meet or beat expected revenues relative to non-growth firms. These findings suggest that window-dressing activities by growth firms may not be sustainable in the long-run and can misguide users of financial statements in their decision-making.

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The Role of Revenue in Firm Valuation

Cited by 73 publications

References 36 publications

Co-movement of revenue: structural changes in the business cycle

Co-movement of revenue: structural changes in the business cycle

Analyst revenue forecast reporting and the quality of revenues and expenses

Achieving Revenue Benchmarks Conditional on Growth Properties

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