"Permanent Earnings of Industrial Firms in Japan --Part I A Cross ]Sectional Analysis (2)--" (in Japanese)

Takashi Obinata
Additional contact information
Takashi Obinata: Faculty of Economics, University of Tokyo

No CIRJE-J-74, CIRJE J-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: The purpose of this paper is to investigate the value relevance of earnings by two steps. First, we identify the factors that introduce transitory earnings into the reported earnings. Next, we reexamine the value relevance of earnings by controlling those factors. In first step, we investigate the earnings change model, testing whether earnings changes are associated with stock price changes. Especially we focus on whether the relation between earnings change and stock price change is different according to the sign and size of earnings change. This research provides major four results as follows. First, since negative earnings changes contain more transitory earnings, the coefficient on the reported earnings for firms decreasing earnings is lower than for firms increasing earnings. Second, even after controlling the negative earnings changes, the coefficient on losses is very small, or not significantly different from zero. Losses are not value relevant, excluding a few exceptional years. Third, our empirical results reject the hypothesis that large earnings changes contain more transitory earnings. On the contrary, the large positive earnings changes seem to be more persistent than the small changes. The coefficient on earnings for firms experiencing the big earnings surprises is higher than for others. Forth, to control three factors ] losses, negative change, large positive change ] improves greatly the relevance of the reported net income. This shows that it is also effective, for estimating the permanent earnings, to control the generation factor of transitory earnings as well as classifying the components of earnings.

Pages: 124 pages
Date: 2002-05
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:tky:jseres:2002cj74

Access Statistics for this paper

More papers in CIRJE J-Series from CIRJE, Faculty of Economics, University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by CIRJE administrative office ().