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Earnings quality measures and stock return volatility in South Africa

Nyanine Chuele Fonou-Dombeu (), Josue Mbonigaba (), Odunayo Magret Olarewaju () and Bomi Cyril Nomlala ()
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Nyanine Chuele Fonou-Dombeu: University of KwaZulu Natal
Josue Mbonigaba: University of KwaZulu Natal
Odunayo Magret Olarewaju: Conventry University
Bomi Cyril Nomlala: University of KwaZulu Natal

Future Business Journal, 2022, vol. 8, issue 1, 1-15

Abstract: Abstract This paper examined the association between various measures of earnings quality and stock return volatility of Johannesburg Stock Exchange (JSE)-listed companies for 10 years from 2009 to 2018. The measures of earnings quality considered were accrual quality, conservatism, earnings persistence, predictability and smoothness. The stock return volatility was measured with idiosyncratic volatility. Multilevel linear regression found that accrual quality and earnings persistence are negatively related to idiosyncratic volatility. Firms with a high value of accrual quality and those with more persistent earnings exhibited a decrease in stock return volatility. Furthermore, it was found that the earnings smoothness positively influenced the idiosyncratic volatility, suggesting that firms with less smooth earnings display an increase in stock return volatility. The conservatism and earnings predictability have no significant effect on stock return volatility. The mixed results of this study supported the noise and information perspective to explain the stock return volatility of JSE-listed companies.

Keywords: Earnings; Earnings quality; Risk; Idiosyncratic volatility; JSE-listed companies (search for similar items in EconPapers)
JEL-codes: G1 M41 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1186/s43093-022-00115-x

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