The DOI matches its Crossref record.
Accounting Conservatism, the Quality of Earnings, and Stock Returns
Open accessAbstract
When a firm practices conservative accounting, changes in the amount of its investments can affect the quality of its earnings. Growth in investment reduces reported earnings and creates reserves. Reducing investment releases those reserves, increasing earnings. If the change in investment is temporary, then current earnings is temporarily depressed or inflated, and thus is not a good indicator of future earnings. This study develops diagnostic measures of this joint effect of investment and conservative accounting. We find that these measures forecast differences in future return on net operating assets relative to current return on net operating assets. Moreover, these measures also forecast stock returns—indicating that investors do not appreciate how conservatism and changes in investment combine to raise questions about the quality of reported earnings.
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Cited by
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Francis, J., LaFond, R., Olsson, P. M., & Schipper, K. (2004) · The Accounting Review · doi:10.2308/accr.2004.79.4.967 · Cited by 2,377
Earnings quality: Evidence from the field
Dichev, I. D., Graham, J. R., Harvey, C. R., & Rajgopal, S. (2013) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2013.05.004 · Cited by 1,103
Customer Satisfaction and Stock Prices: High Returns, Low Risk
Fornell, C., Mithas, S., Morgeson, F. V., & Krishnan, M. S. (2005) · Journal of Marketing · doi:10.1509/jmkg.2006.70.1.3 · Cited by 733
Earnings volatility and earnings predictability
Dichev, I. D., & Tang, V. W. (2009) · Journal of Accounting and Economics · doi:10.1016/j.jacceco.2008.09.005 · Cited by 632
Embedding environment and sustainability into corporate financial decision‐making
Siegrist, M., Bowman, G., Mervine, E., & Southam, C. (2020) · Accounting & Finance · doi:10.1111/acfi.12533 · Cited by 87
Metadata
- Authors
- Penman, S. H., & Zhang, X.-J.
- Venue
- The Accounting Review
- Publisher
- American Accounting Association
- Published
- 2002-04-01
- Volume
- 77
- Issue
- 2
- Pages
- 237-264
- ISSN
- 0001-4826 (ISSN-L)
- 1558-7967
- OpenAlex
- W3124604472
- Cited by
- 1,160
- References
- 0
- FWCI
- 75.63
- Type
- journal article
- Language
- en
- Open access
- green
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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