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The Effect of Matching on Firm Earnings Components

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  • Joong-Seok Cho
  • Hyung Ju Park

Abstract

Using a sample of all U.S. firms listed on the U.S. major stock exchanges for the period covering 1988 through 2014, we investigate the relation between firm earnings components and matching. Following the methodology of Hui et al. (2016), we decompose earnings into industry-wide and firm-specific earnings. Then, we partition them into cash flows and accruals, four earnings components. As our matching measure, we use the correlation between revenues and expenses over the five-year rolling period. We investigate how matching affects the persistence of each earnings component and our results indicate that matching enhances the persistence of earnings components. Furthermore, our study shows that the effect is more outstanding on firm-specific accruals, which are more prone to the management discretion, than cash flows. JEL Codes - G14; M41

Suggested Citation

  • Joong-Seok Cho & Hyung Ju Park, 2017. "The Effect of Matching on Firm Earnings Components," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 64(4), pages 513-524, December.
    • Handle: RePEc:aic:saebjn:v:64:y:2017:i:4:p:513-524:n:87
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    References listed on IDEAS

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    1. Mary E. Barth & Wayne R. Landsman & Mark H. Lang, 2008. "International Accounting Standards and Accounting Quality," Journal of Accounting Research, Wiley Blackwell, vol. 46(3), pages 467-498, June.
    2. Ayers, Benjamin & Freeman, Robert N., 1997. "Market assessment of industry and firm earnings information," Journal of Accounting and Economics, Elsevier, vol. 24(2), pages 205-218, December.
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    More about this item

    Keywords

    firm-specific earnings; industry-wide earnings; matching; persistence; capital markets;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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