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Explaining earnings persistence: a threshold autoregressive panel unit root approach

Author

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  • Galimberti, Jaqueson Kingeski
  • Cupertino, César Medeiros

Abstract

This paper proposes a reassessment to the hypothesis that the persistence of current earnings performance is decreasing in the magnitude of the accrual component of earnings and increasing in the magnitude of the cash flow component of earnings. For this purpose, a threshold autoregressive panel unit root approach is proposed using a Fisher-type. This approach allowed us to distinguish between unconditioned and conditioned measures of persistence, making it possible to infer whether the earnings components condition its persistence. The approach was applied to a sample of 126 Brazilian firms in the period from 1995 to 2007. Our main results are the finding of relevant earnings persistence heterogeneity between the firms in the sample, a relatively lower unconditioned measure of earnings persistence, and a partial rejection of the hypothesis afore mentioned, specifically about the effects of the accruals components over the earnings persistence.

Suggested Citation

  • Galimberti, Jaqueson Kingeski & Cupertino, César Medeiros, 2009. "Explaining earnings persistence: a threshold autoregressive panel unit root approach," MPRA Paper 14237, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14237
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    File URL: https://mpra.ub.uni-muenchen.de/14237/1/MPRA_paper_14237.pdf
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    References listed on IDEAS

    as
    1. John E. Core & Wayne R. Guay & David F. Larcker, 2003. "Executive equity compensation and incentives: a survey," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 27-50.
    2. Christophe Hurlin & Valérie Mignon, 2007. "Second Generation Panel Unit Root Tests," Working Papers halshs-00159842, HAL.
    3. repec:bla:joares:v:6:y:1968:i:2:p:159-178 is not listed on IDEAS
    4. Christoph Kaserer & Carmen Klingler, 2008. "The Accrual Anomaly Under Different Accounting Standards - Lessons Learned from the German Experiment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7-8), pages 837-859.
    5. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
    6. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    7. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    8. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
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    Cited by:

    1. Timothy P. Sharpe, 2013. "Institutional arrangements and public debt threshold limits," International Review of Applied Economics, Taylor & Francis Journals, vol. 27(6), pages 707-728, November.
    2. Timothy P. Sharpe, 2013. "A Modern Money Perspective on Financial Crowding-out," Review of Political Economy, Taylor & Francis Journals, vol. 25(4), pages 586-606, October.

    More about this item

    Keywords

    earnings persistence; accruals; threshold autoregressions; panel unit root tests;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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