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Deferred revenue changes as a leading indicator for future financial performance

Author

Listed:
  • Ke Zhong
  • Fang Wang
  • Lihui Zhou

Abstract

Purpose - The purpose of this paper is to investigate whether deferred revenue changes can serve as a leading indicator for firms listed on China’s stock markets, and whether China’s market participants can appropriately incorporate future performance implications of deferred revenue changes. Design/methodology/approach - Empirical/archival/regression analysis. Findings - The authors find that deferred revenue changes are positively associated with the next two years’ sales growth, gross profit margin, profit margin, and return on assets, suggesting that deferred revenue changes can serve as a valid leading indicator for future financial performance. The authors also find that Chinese investors tend to underweight future performance implications of deferred revenue changes. Originality/value - To the authors’ knowledge, this study is among the first research to examine deferred revenue changes as a leading fundamental indicator and market underreaction to reported accounting information for firms listed on China’s stock markets.

Suggested Citation

  • Ke Zhong & Fang Wang & Lihui Zhou, 2017. "Deferred revenue changes as a leading indicator for future financial performance," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 25(4), pages 549-568, December.
  • Handle: RePEc:eme:arapps:ara-11-2015-0118
    DOI: 10.1108/ARA-11-2015-0118
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    Citations

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    Cited by:

    1. Wasan, Pratibha & Mulchandani, Kalyani & Mulchandani, Ketan, 2022. "Do changes in deferred revenue indicate future financial performance? Evidence from India," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 46(C).
    2. Jun Hong Park & Hyunseog Chung & Ki Hong Kim & Jin Ju Kim & Chulung Lee, 2021. "The Impact of Technological Capability on Financial Performance in the Semiconductor Industry," Sustainability, MDPI, vol. 13(2), pages 1-20, January.

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