期刊名称：International Journal of Finance and Accounting
印刷版ISSN：2168-4812
电子版ISSN：2168-4820
出版年度：2013
卷号：2
期号：7
页码：348-364
DOI：10.5923/j.ijfa.20130207.03
语种：English
出版社：Scientific & Academic Publishing Co.
摘要：After the economic recession in 2008, the U.S. business community became more concerned about earnings quality. This paper applies the earnings response coefficient (ERC) methodology and the abnormal earnings growth (AEG) model to examine whether firms with consecutive positive abnormal earnings growth in previous years exhibit a higher ERC than other firms. We then use this approach to detect whether these firms report high quality earnings. Accounting research has focused on ERC to investigate the usefulness of accounting earnings in explaining stock returns. Extant research on valuation theory has shown that AEG drives firm value. Our results support the hypothesis that annual returns are higher for firms with consistent positive abnormal earnings growth forecastsinferred from analysts in a consecutive three-year rolling window. For these firms, we furthershow that post earnings announcement analyst forecast revisionsin the following year are more pronounced. We also find that the forecast revisions are even more pronounced when the history of positive/negative abnormal earnings forecasts are consistent with the sign of positive/negative forecast error in current year. The finding also indicates that analysts tend to place less weight on positive current year earnings surprise if firms show three-year negative abnormal earnings forecast in current and prior two year. From valuation analysis perspective, we document that equity premium are higher for firms which not only meet or beat analyst expectations but also have a history of positive AEG forecasts than firms without such a history.
