Economics at your fingertips  

Earnings Trend and Performance Relative to Benchmarks: How Consistency Influences Their Joint Use

Lisa Koonce and Marlys Gascho Lipe

Journal of Accounting Research, 2010, vol. 48, issue 4, 859-884

Abstract: ABSTRACT Archival research shows that the market reacts to earnings trend as well as to earnings performance relative to analysts' forecasts (i.e., benchmark performance). We conduct four experiments to investigate "how" and "why" investors react to these two measures when "both" are available over multiple time periods. Our results show that investors rely on an earnings measure only when it is consistent over time. When both measures are consistent over time, investors use them in an additive fashion, suggesting that they view them as providing different information about the firm. Further tests show that investors believe that earnings trend and benchmark performance both provide information about a firm's future prospects and management's credibility. Although judged future prospects fully explain the effect of earnings trend on investor judgments, neither judged future prospects nor management credibility completely explains the effect of benchmark performance. Our study has implications for firm managers and researchers. Copyright (c), University of Chicago on behalf of the Accounting Research Center, 2010.

Date: 2010
References: Add references at CitEc
Citations View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link) ... &year=2010&part=null link to full text (text/html)
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:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0021-8456

Access Statistics for this article

Journal of Accounting Research is currently edited by Ray Ball, Philip G. Berger, Merle Erickson, Richard Leftwich, Douglas J. Skinner and Abbie Smith

More articles in Journal of Accounting Research from Wiley Blackwell
Series data maintained by Wiley-Blackwell Digital Licensing ().

Page updated 2017-09-29
Handle: RePEc:bla:joares:v:48:y:2010:i:4:p:859-884