The role of earnings persistence in valuation accuracy and the time horizon

Título: The role of earnings persistence in valuation accuracy and the time horizon

Autores: PIMENTEL, R. C.; AGUIAR, A. B.

Resumo/Sinopse: Based on the assumption that earnings persistence has implications for both financial analysis and compensation contracts, the aim of this paper is to investigate the role of earnings persistence assuming that (i) more persistent earnings are likely to be a better input to valuation models and (ii) more persistent earnings are likely to serve as a proxy for long-term market and managerial orientation. The analysis is based on Brazilian listed firms from 1995 to 2013, and while we document strong support for the relevance of earnings persistence in financial analysis and valuation, we fail to document a significant relationship between earnings persistence and long-term value orientation. These results are sensitive to different specifications, and additional results suggest that firms’ idiosyncratic risk (total risk) is relevant to explain the focus on short-term outcomes (short-termism) across firms. The main contribution of this paper is to offer empirical evidence for the relevance of accounting numbers in both valuation and contractual theories in an emergent market.

Data de publicação: 2016

Periódico/Editora: RAE – Revista de Administração de Empresas

Edição: Volume 56

Palavras-chave: Accounting information, earnings persistence, residual income valuation, market myopia, emerging markets