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Earnings persistence and stock prices: empirical evidence from an emerging market

Author

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  • Varun Dawar

Abstract

Purpose - – This study aims to investigate the persistence ability of accounting variables, namely, abnormal earnings, book value, accruals and cash flows over a period of time and their valuation relevance in Indian scenario. Design/methodology/approach - – The study utilizes the generalized version of the Ohlson model which links market prices with abnormal earnings, book value and earning components (accruals and cash flows). Fixed-effect panel data regression is used to analyze six years of data on the sample units to determine the persistence and valuation relevance. Findings - – The findings provide evidence on the construct of persistence and value relevance of earnings and book value of equity in the Indian context. The findings further confirm that investors in India are fixated on earnings and fail to attend separately to the cash flow and accrual components of earnings while undertaking their investment decisions. Practical implications - – The empirical findings of the study will enable the analysts and investors to understand the relevance and persistence of accounting variables in case of an emerging market like India. Originality/value - – The study extends the extant literature on value relevance studies in developed markets to an emerging market like India and enriches it in several ways.

Suggested Citation

  • Varun Dawar, 2014. "Earnings persistence and stock prices: empirical evidence from an emerging market," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 12(2), pages 117-134, September.
    • Handle: RePEc:eme:jfrapp:v:12:y:2014:i:2:p:117-134
    DOI: 10.1108/JFRA-06-2013-0044
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    Citations

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    Cited by:

    1. Kumari, Pooja & Mishra, Chandra Sekhar, 2020. "Value relevance of aggregated and disaggregated earnings in India: Significance of intangible intensity," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 39(C).
    2. Julio Pereira de Araujo & Marcos Roberto Gois de Oliveira Macedo, 2018. "Cointegration Analysis among the Variables of the Ohlson Model for Brazilian Companies," Applied Finance and Accounting, Redfame publishing, vol. 4(1), pages 122-145, February.

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