{"title":"The stock market boosts its rewards for increasing earnings patterns","authors":"Yu-An Chen, Dan Palmon","doi":"10.1007/s11156-024-01316-x","DOIUrl":null,"url":null,"abstract":"<p>Barth et al. (J Account Res 37:387–413, 1999. https://doi.org/10.2307/2491414) find that the market rewards firms showing increasing earnings patterns with larger price-earnings multiples from 1982 to 1992. This paper examines whether the rewards for increasing earnings patterns have changed since then. The declining relevance of accounting earnings for equity valuation or accounting scandals in the early 2000s would predict a lower valuation for earnings numbers. On the other hand, earnings-related disclosures and post-scandal regulatory efforts, such as the Sarbanes–Oxley Act (SOX), may boost earnings relevance and restore investor confidence in the accounting system, predicting increased rewards for increasing earnings patterns. We find that the earnings multiples for firms with increasing earnings patterns decrease temporarily in the years with major accounting scandals, but the market boosts its rewards to firms showing increasing earnings patterns in the reshaped reporting environment after 1993, and SOX is associated with this boost.</p>","PeriodicalId":47688,"journal":{"name":"Review of Quantitative Finance and Accounting","volume":"19 1","pages":""},"PeriodicalIF":1.9000,"publicationDate":"2024-07-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Quantitative Finance and Accounting","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1007/s11156-024-01316-x","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Barth et al. (J Account Res 37:387–413, 1999. https://doi.org/10.2307/2491414) find that the market rewards firms showing increasing earnings patterns with larger price-earnings multiples from 1982 to 1992. This paper examines whether the rewards for increasing earnings patterns have changed since then. The declining relevance of accounting earnings for equity valuation or accounting scandals in the early 2000s would predict a lower valuation for earnings numbers. On the other hand, earnings-related disclosures and post-scandal regulatory efforts, such as the Sarbanes–Oxley Act (SOX), may boost earnings relevance and restore investor confidence in the accounting system, predicting increased rewards for increasing earnings patterns. We find that the earnings multiples for firms with increasing earnings patterns decrease temporarily in the years with major accounting scandals, but the market boosts its rewards to firms showing increasing earnings patterns in the reshaped reporting environment after 1993, and SOX is associated with this boost.
期刊介绍:
Review of Quantitative Finance and Accounting deals with research involving the interaction of finance with accounting, economics, and quantitative methods, focused on finance and accounting. The papers published present useful theoretical and methodological results with the support of interesting empirical applications. Purely theoretical and methodological research with the potential for important applications is also published. Besides the traditional high-quality theoretical and empirical research in finance, the journal also publishes papers dealing with interdisciplinary topics.