"Relevance of Earnings Levels and Surprises: Evidence from Manufacturing Firms in Japan" (in Japanese)
AbstractThe purpose of this paper is to investigate the value relevance of earnings by two steps. First, we identify the factors that introduce transitory earnings into the reported earnings. Next, we reexamine the value relevance of earnings by controlling those factors. In the first step, we investigate the earnings changes model, testing whether earnings changes are associated with stock price changes. Especially we focus on whether the relation between earnings changes and stock price changes is affected by the sign and size of earnings surprises. This research provides major four results as follows. First, since negative earnings changes contain more transitory earnings, the coefficient on the reported earnings for firms decreasing earnings is lower than for firms increasing earnings. Second, even after controlling the negative earnings changes, the coefficient on losses is very small, or not significantly different from zero. Losses are not value relevant, excluding a few exceptional years. Third, our empirical results reject the hypothesis that large earnings changes contain more transitory earnings (S-shaped relation). On the contrary, the large positive earnings changes seem to be more persistent, due to the competitive advantage, than the small changes. The coefficient on earnings levels for firms experiencing the big earnings surprises is higher than for others (J-shaped relation). Fourth, to control three factors ] losses, negative changes, large positive changes ] improves greatly the relevance of the reported net income. This shows that it is also effective, for estimating the permanent earnings, to control the generation factor of transitory earnings as well as classifying the components of earnings.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE J-Series with number CIRJE-J-85.
Length: 114 pages
Date of creation: Dec 2002
Date of revision:
Contact details of provider:
Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-09 (All new papers)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.