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Article
Publication date: 1 December 2005

Khaled ElMoatasem Abdelghany

Although the academic research on the quality of earnings has been improved by presenting different approaches of measurement, there is no agreed‐upon generally accepted approach…

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Abstract

Purpose

Although the academic research on the quality of earnings has been improved by presenting different approaches of measurement, there is no agreed‐upon generally accepted approach to measure the earning quality. Aims to present results of an empirical study measuring the quality of earnings on companies listed in NYSE.

Design/methodology/approach

Uses a sample of 90 companies listed in the NYSE. The analysis is directed to reach a general assessment of the quality of earnings if there is a complete consistency among the three approaches, and if not, the quality of earnings is questionable and needs further analysis and investigations.

Findings

The results show that different approaches of measuring the quality of earning lead to different assessment, and one industry or one company can not be labeled as having low or high quality of earning based on the result of one approach only. The results also suggest that the stakeholders before making any financing, investing decision or taking any corrective action, have to use more than one approach to assess the quality of earnings.

Originality/value

Indicates that financial analysts and governmental agencies dealing with companies should apply more than one measure for the quality of earning in order to have strong evidence about the level of quality before taking any corrective action or making any decision related to those companies.

Details

Managerial Auditing Journal, vol. 20 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

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Article
Publication date: 1 December 2005

Khaled Elmoatasem Abdelghany

The effect of the cost of capital CEC on the investing and financing decisions is a matter of considerable interest and importance to the financial studies. However, the impact of…

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Abstract

Purpose

The effect of the cost of capital CEC on the investing and financing decisions is a matter of considerable interest and importance to the financial studies. However, the impact of CEC on the stock prices is not well established. This research aims to examine whether the CEC has a significant incremental explanation of the changes in the stock prices which the basic traditional accounting variables could not provide.

Design/methodology/approach

Applies the adjusted constant dividend‐growth model to measure the CEC and the incremental explanatory power test on a sample of 37 companies listed on NYSE.

Findings

The results indicate that there is non‐significant impact of CEC for the full sample, the small size firms, and the manufacturing firms. However, I find an evidence that CEC has a significant impact on the stock prices for both the large‐size firms and the non‐manufacturing firms.

Research limitations/implications

The study was completed at a specific date of measurement which puts some limitations on the generality of its results.

Originality/value

Assesses whether the cost of equity possess incremental explanation to the change in the stock prices beyond the explanation provided by the traditional accounting variables.

Details

Managerial Auditing Journal, vol. 20 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

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Article
Publication date: 1 October 2005

Khaled Elmoatasem Abdelghany

PurposeIn 1997, the Securities and Exchange Commission (SEC) issued Financial Reporting Release No. 48. FFR No. 48 requires that companies disclose both qualitative and…

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Abstract

PurposeIn 1997, the Securities and Exchange Commission (SEC) issued Financial Reporting Release No. 48. FFR No. 48 requires that companies disclose both qualitative and quantitative market risk information for risks of loss arising from adverse changes in interest rates, foreign currency rates, commodity prices, and equity prices. This research focuses on the required disclosure of market risk related to equity prices which is commonly known as Beta in the capital asset pricing model (CAPM).Design/methodology/approachA sample of 323 companies listed in NYSE was selected to investigate the relationship between the market risk and the accounting measures of risk in order to determine the accounting variables that should be disclosed as a substitute of market risk, if there is no data, for the companies to fulfill the SEC requirements.FindingsBy identifying the accounting measures most closely associated with market Beta, the financial manager may be able to influence the Beta value by changing the company's structure as summarized in the successful accounting – determined risk measures. Such finding may also be used to estimate a company's Beta value in situations where historical stock market price data is limited or not available. An example of this later circumstance occurs in the case of initial public offer (IPO). Market price data may also be limited in acquisition cases, where the acquisition target is a subsidiary of a larger company.Originality/valueThe results of this study address these finance and accounting practice situations.

Details

Managerial Auditing Journal, vol. 20 no. 8
Type: Research Article
ISSN: 0268-6902

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