Accounting-based downside risk, cost of capital, and the macroeconomy

• 成果类型: Article
• 署名作者: Konchitchki, Yaniv; Luo, Yan; Ma, Mary L. Z.; Wu, Feng
• 署名单位: University of California System; University of California Berkeley; Fudan University; York University - Canada; Hong Kong Polytechnic University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-015-9338-7
• 发表日期: 2016
• 页码: 1-36
• 关键词: Cash flows; stock returns; realized returns; Expected returns; Accruals quality; earnings; equity; INFORMATION; performance; disclosure

摘要

We hypothesize that earnings downside risk, capturing the expectation for future downward operating performance, contains distinct information about firm risk and varies with cost of capital in the cross section of firms. Consistent with the validity of the earnings downside risk measure, we find that, relative to low earnings downside risk firms, high earnings downside risk firms experience more negative operating performance over the subsequent period, are more sensitive to downward macroeconomic states, and are more strongly linked to earnings attributes and other risk-related measures from prior research. In line with our prediction, we also find that earnings downside risk explains variation in firms' cost of capital, and that this link between earnings downside risk and cost of capital is incremental to several earnings attributes, accounting and risk factor betas, return downside risk, default risk, earnings volatility, and firm fundamentals. Overall, this study contributes to accounting research by demonstrating the key valuation and risk assessment roles of earnings downside risk derived from firms' financial statements, also shedding new light on the link between accounting and the macroeconomy.