Behavior of the Earnings Response Coefficient

Hassan Espahbodi ； Reza Espahbodi

《Advances in Quantitative Analysis of Finance and Accounting》 8期 (2010/06) Pp. 191-222

https://doi.org/10.6293/AQAFA.2010.08.09

並列摘要

This paper attempts to identify the firm specific factors that explain cross-sectional variations in the magnitude of the earnings response coefficient (ERC). Since past research shows that ERC also varies over time, a two-stage regression analysis is used. In the first stage, we estimate the ERC of each firm, allowing for the temporal variations in ERC. In the second stage, using a recursive partitioning technique, we regress the estimated ERCs on various firm specific factors to understand the nature of cross-sectional variation in ERC. We find that the cross-sectional variation in ERC is mostly explained by earnings predictability (variability), earnings level (controlling for the sign and size of earnings news), default risk, size, systematic risk, and growth. Our finding is consistent with firm valuation, political cost, and contracting cost hypotheses.

並列關鍵字

Earnings informativeness ； Earnings-return relation ； Capital markets ； Firm valuation ； Contracting ； Political cost

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