Sustained Earnings and Revenue Growth, Earnings Quality, and Earnings Response Coefficients

Aloke Ghosh (), Zhaoyang Gu () and Prem C. Jain ()
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Aloke Ghosh: The Securities and Exchange Commission, the City University of New York
Zhaoyang Gu: Carnegie Mellon University
Prem C. Jain: Georgetown University

Review of Accounting Studies, 2005, vol. 10, issue 1, No 2, 33-57

Abstract: Abstract We show that firms reporting sustained increases in both earnings and revenues have (1) higher quality earnings and (2) larger earnings response coefficients (ERCs) in comparison to firms reporting sustained increases in earnings alone. With respect to earnings quality, firms with revenue-supported increases in earnings have more persistent earnings, exhibit less susceptibility to earnings management, and have higher future operating performance. With respect to response coefficients, firms with revenue-supported increases in earnings have both higher ERCs and lower book value response coefficients, consistent with the implications of the Ohlson (1995, Contemporary Accounting Research 12, 661–687) model.

Keywords: earnings growth; revenue growth; earnings quality; earnings response coefficients (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s11142-004-6339-3

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