Deferred revenue changes as a leading indicator for future financial performance

Ke Zhong, Fang Wang and Lihui Zhou

Asian Review of Accounting, 2017, vol. 25, issue 4, 549-568

Abstract: Purpose - The purpose of this paper is to investigate whether deferred revenue changes can serve as a leading indicator for firms listed on China’s stock markets, and whether China’s market participants can appropriately incorporate future performance implications of deferred revenue changes. Design/methodology/approach - Empirical/archival/regression analysis. Findings - The authors find that deferred revenue changes are positively associated with the next two years’ sales growth, gross profit margin, profit margin, and return on assets, suggesting that deferred revenue changes can serve as a valid leading indicator for future financial performance. The authors also find that Chinese investors tend to underweight future performance implications of deferred revenue changes. Originality/value - To the authors’ knowledge, this study is among the first research to examine deferred revenue changes as a leading fundamental indicator and market underreaction to reported accounting information for firms listed on China’s stock markets.

Keywords: Financial performance; Deferred revenue changes; Fundamental signal; Leading indicator; Market underreaction (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-11-2015-0118

DOI: 10.1108/ARA-11-2015-0118

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