Work

Lack of timeliness and noise as explanations for the low contemporaneuos return-earnings association

Year: 1994

Type: article

Abstract: We assess earning's lack of timeliness and value-irrelavant noise in earnings as explanations for the weak contemporaneous return-earnings assocation. Earnings lack timeliness because objectivity, verifiability, and conservatism conventions underlie the accounting measurement process. Noise in earnings is uncorrelated with returns in all periods. It likely gets introduced when estimates of future cash flows that differ from the market's estimates are included in earnings determined by accounting rules. Consistent with earning lacking timeliness, we find current and future earnings adjusted for expectational errors explain roughly 3–6 times as much of the annual return variation as current earnings alone.

Source: Journal of Accounting and Economics

DOI: 10.1016/0165-4101(94)90024-8

Authors: Daniel W. Collins, S.P. Kothari, Jay Shanken, Richard G. Sloan

Institutions: University of Iowa, University of Rochester, University of Pennsylvania

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $4,170

OpenAlex ID: W2027435802

FWCI: 40.34

Cites: 51

Cited by: 471

Related to: 10