Size and Book-to-Market Factors in Earnings, Cash Flows and Stock Returns: Empirical Evidence for the UK

2003 ◽  
Author(s):  
Andreas Charitou ◽  
Eleni Constantinidi
Keyword(s):  
Stock Returns ◽  
Empirical Evidence ◽  
Cash Flows ◽  
Market Factors ◽  
The Uk

How Do Earnings Numbers Relate to Stock Returns? A Review of Classic Accounting Research with Updated Evidence

2004 ◽  
Vol 18 (4) ◽  
pp. 263-286 ◽  
Author(s):  
D. Craig Nichols ◽  
James M. Wahlen
Keyword(s):  
Stock Returns ◽  
Empirical Evidence ◽  
Financial Reporting ◽  
Academic Research ◽  
Cash Flows ◽  
Share Prices ◽  
Earnings Information ◽  
Post Earnings Announcement Drift ◽  
Using Data ◽  
The Impact

An extensive body of academic research in accounting develops theory and empirical evidence on the relation between earnings information and stock returns. This literature provides important insights for understanding the relevance of financial reporting. In this article, we summarize the theory and evidence on how accounting earnings information relates to firms' stock returns, particularly for the benefit of students, practitioners, and others who may not yet have been exposed to this literature. In addition, we present new empirical evidence on the relation between earnings and returns by replicating and extending three classic studies using data from 1988 through 2002. Specifically, we first demonstrate the relation between earnings changes and stock returns, replicating Ball and Brown (1968), and we compare that relation to the relation between changes in cash flows from operations and stock returns. Second, we demonstrate the impact of earnings persistence on stock returns, extending findings from studies such as Kormendi and Lipe (1987), and highlighting the effects of differences in persistence across earnings increases and decreases. Third, we provide evidence to assess the efficiency with which the capital markets impound quarterly earnings information into share prices, showing that the post-earnings-announcement-drift results of Bernard and Thomas (1989) extend to recent data.

Narrative Exchange as Knowledge Transfer: The Rhetorical Construction of Opposition to GM Crops in SW England

2011 ◽  
Vol 13 (1) ◽  
Author(s):  
David Downing
Keyword(s):  
Knowledge Transfer ◽  
Empirical Evidence ◽  
Food Chain ◽  
Genetically Modified Organisms ◽  
Local Food ◽  
Culturally Appropriate ◽  
Rhetorical Construction ◽  
Risks And Benefits ◽  
Ethnographic Data ◽  
The Uk

The release of genetically modified organisms into the environment and food chain in the UK has produced one of the most visible and enduring controversies of recent times. Amid ongoing claim and counter-claim by actors on either side of the GM ‘debate’ over the salient ‘facts’ or balance of risks and benefits associated with the technology, this controversy can be fruitfully seen as a struggle between contested networks of knowledge. Drawing on ethnographic data collected during recent PhD fieldwork, I focus on those, loosely defined as members of ‘local food networks’ in SW England, who perceive their values and cultural projects to be at risk from the deployment of this technology. In scrutinizing how distinctly ‘oppositional’ knowledge is created, exchanged and transformed particularly in relation to the construction and maintenance of cultural and historical boundaries, I suggest that in this arena a key vehicle of knowledge transfer is the narrative or story. A successfully deployed narrative can resolve uncertainties, or equally, dissolve undesirable certainties. Knowledge transfer thus becomes a matter of rhetoric, of persuasion, whereby skilfully deployed narratives can be viewed as analogical networks of associations - enrolling culturally appropriate characters, values and concepts - to move the targeted audience in the desired manner. I argue that such transfers must be seen not only as exchanges of networks of knowledge but also of networks of ignorance, for as the ethnographic data reveals, when the stakes are perceived to be so high, ideological coherence often outweighs empirical evidence and logical consistency. This raises a critical dilemma for the ethnographer. What should he/she do when confronted in the field by exaggerated claims or misinformation?

Discretionary Risk Disclosures

2003 ◽  
Vol 78 (2) ◽  
pp. 449-469 ◽  
Author(s):  
Bjorn N. Jorgensen ◽  
Michael T. Kirschenheiter
Keyword(s):  
Stock Returns ◽  
Risk Premium ◽  
Voluntary Disclosure ◽  
Cash Flows ◽  
Share Price ◽  
Risk Disclosure ◽  
Share Prices ◽  
Ex Post ◽  
Partial Disclosure ◽  
Future Cash Flows

We model managers' equilibrium strategies for voluntarily disclosing information about their firm's risk. We consider a multifirm setting in which the variance of each firm's future cash flow is uncertain. A manager can disclose, at a cost, this variance before offering the firm for sale in a competitive stock market with risk-averse investors. In our partial disclosure equilibrium, managers voluntarily disclose if their firm has a low variance of future cash flows, but withhold the information if their firm has highly variable future cash flows. We establish how the manager's discretionary risk disclosure affects the firm's share price, expected stock returns, and beta, within the framework of the Capital Asset Pricing Model. We show that whereas one manager's discretionary disclosure of his firm's risk does not affect other firms' share prices, it does affect the other firms' betas. Also, we demonstrate that a disclosing firm has lower risk premium and beta ex post than a nondisclosing firm. Finally, we show that ex ante, the expected risk premium and expected beta of each firm are higher under a mandatory risk disclosure regime than in the partial disclosure equilibrium that arises under a voluntary disclosure regime.

An Analysis of the Sources of Value Loss Following Financial Restatements

2021 ◽  
pp. 0148558X2198991
Author(s):  
Philip K. Hong ◽  
Jaywon Lee ◽  
Sang-Hyun Park ◽  
Sukesh Patro
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Discount Rate ◽  
Stock Price ◽  
Cash Flows ◽  
Financial Fraud ◽  
Earnings Persistence ◽  
Flow Component ◽  
Financial Restatements ◽  
Value Loss

We decompose the total value loss around firms’ announcements of financial restatements into components arising from investors’ revisions in cash flows and discount rates. First, relative to population benchmarks, restatements represent circumstances in which the cash flow component becomes more important in explaining valuations. While we find significant contributions from both sources, with the cash flow component explaining more than 33% of the variation in stock returns surrounding restatement announcements, this component explains only 13% to 22% in comparable non-restating firms. When restatements are caused by underlying financial fraud, the discount rate impact becomes more important, explaining about 88% of return variation. On the contrary, the cash flow impact is relatively larger for firms with higher earnings persistence or restatements associated with errors. Our decomposition of the value loss helps explain returns in the post-announcement period. Firms with a higher relative discount rate impact experience a significant downward stock price drift after the initial announcement-related price decline. For firms with a higher relative cash flow impact, the evidence suggests the initial impact of the restatement announcement is more complete with no subsequent drift pattern. Our findings close gaps in the evidence on financial restatements and extend the literature on the drivers of stock price movements.

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