Disaggregated earnings and the prediction of ROE and stock prices: a case of the banking industry

Pervaiz Alam and Charles A. Brown

Review of Accounting and Finance, 2006, vol. 5, issue 4, 443-463

Abstract: Purpose - This paper seeks to investigate whether disaggregated bank earnings better predict next period earnings than contemporaneous aggregated earnings. Design/methodology/approach - Fairfieldet al.'s (1996) regression approach is used for predicting next period's return of equity (ROE) and stock prices using disaggregated earnings data. Findings - The results show that the mean adjustedR‐square significantly increases with the progressive disaggregation of earnings. The results also demonstrate that disaggregated components are better able to predict next period earnings and stock prices than aggregated earnings. Research limitations/implications - The findings support the US Financial Accounting Standard Board's contention that disaggregated information may be more useful than aggregated information for investment, credit, and financing decisions. Practical implications - Investors and analysts should use disaggregated income statement information in predicting next period earnings and stock prices for the banking industry. Originality/value - The main contribution of this paper is to demonstrate how fully disaggregated earnings explain ROE, stock prices, and analysts forecast error in the banking industry.

Keywords: Earnings; Stocks; Banking (search for similar items in EconPapers)
Date: 2006
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:14757700610712480

DOI: 10.1108/14757700610712480

Access Statistics for this article

Review of Accounting and Finance is currently edited by Nawazish Mirza

More articles in Review of Accounting and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().