Economic persistence, earnings informativeness, and stock return regularities

• 成果类型: Article
• 署名作者: Du, Kai; Huddart, Steven
• 署名单位: Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-020-09531-2
• 发表日期: 2020
• 页码: 1263-1300
• 关键词: Cash flows; accruals; INVESTMENT; QUALITY; income

摘要

We propose a simple framework for understanding accounting-based stock return regularities. A firm's accounting reports provide noisy information about hidden economic states that evolve according to a Markov process. In response to the accounting reports, a representative Bayesian investor forms beliefs about the underlying state and hence the value of the firm. For a population of such firms, the model provides predictions consistent with two sets of well-documented regularities: (i) the market reaction to an earnings announcement that ends a string of consecutive earnings increases and (ii) the return predictabilities based on accruals and book-tax differences. The model also yields novel cross-sectional predictions about the distinct roles of economic persistence and earnings informativeness. We confirm these predictions through empirical tests.