EARNINGS PERSISTENCE AND INVESTMENT EFFICIENCY

Chia-Chung Chan ； Bing-Huei Lin ； Yufen Fu ； Pei-Ying Chen

《Advances in Financial Planning and Forecasting》 9期 (2018/12) Pp. 17-52

https://doi.org/10.6291/AFPF.201812_9.0002

摘要

Earnings persistence indicates the sustainability of a firm's earnings, and thus conveys important information for management decisions. The aim of this paper is to examine the effect of earnings persistence on the efficiency of a firm's investment decisions. We use 1,467 U.S. listed firms as the research sample, with the sample period from 1992-2015 to investigate the target issues and test relevant hypotheses. The empirical evidence shows that earnings persistence is positively associated with a firm's investment efficiency, with the results being robust even after considering the influence of earnings manipulation by management. The evidence also suggests that for firms that confront substantial financial constraints, earnings persistence significantly mitigates their investment inefficiency as they would tend to under-invest in the situation of a lack of capital inflow. Furthermore, when we address concerns about risks that affect investment decisions through the volatility of operating cash flow and idiosyncratic risks of the firm, it shows that the effect of earnings persistence is critical for a firm's investment efficiency as it faces higher risks. This study contributes to the literature on the determinants of investment efficiency, and on the role of earnings persistence in investment decisions.

關鍵字

Earnings Persistence ； Investment Efficiency ； Financial Constraints ； Cash Flow Volatility ； Idiosyncratic Risks

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