Domestic and stock return foreign earnings, variability, and the impact of investor sophistication

• 成果类型: Article
• 署名作者: Callen, JL; Hope, OK; Segal, D
• 署名单位: University of Toronto
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/j.1475-679X.2005.00175.x
• 发表日期: 2005
• 页码: 377-412
• 关键词: VARIANCE DECOMPOSITION; institutional investors; HOME BIAS; income; valuation; MARKETS

摘要

We examine the importance of foreign earnings relative to domestic earnings for a sample of U.S. multinationals using variance decomposition. Our methodology represents an alternative and complementary approach over the prior literature, which is based on traditional regressions and earnings response coefficients. We document that domestic earnings are more important in explaining the variance of unexpected returns than are foreign earnings and that the relative importance of domestic earnings is a decreasing function of investor sophistication. Last, we classify institutional investors as either short- or long-term oriented following Bushee [1998]. We find that the variance contribution of foreign earnings increases with the level of investment by long-term investors. In contrast, there is no significant relation between the degree of ownership by short-term (or transient) investors and the variance contribution of domestic and foreign earnings. Overall, our results are consistent with Thomas's [1999] finding that investors on average underestimate the persistence of foreign earnings.