To examine whether both the value relevance of accounting information, and the quality of earnings affect financial analysts' revisions of forecast annual earnings per share soon…
Abstract
Purpose
To examine whether both the value relevance of accounting information, and the quality of earnings affect financial analysts' revisions of forecast annual earnings per share soon after an earnings release.
Design/methodology/approach
For firms whose accounting earnings provide either a basis for firm valuation or new information, analysts are predicted to revise earnings forecasts in response to the magnitude of surprise in the earnings release. Using publicly available data, regression analysis explores the influence of earnings response coefficients (ERCs), unexpected earnings, and interactions between ERCs, the association between earnings and returns, and unexpected earnings on forecast revisions after earnings announcements.
Findings
Empirical tests demonstrate a positive relation between the percentage of analysts revising forecasts soon after interim earnings announcements and firm‐specific ERCs, the interaction between the magnitude of earnings surprises, ERCs, and earnings‐returns associations, and pre‐announcement dispersion in forecasts. The results suggest that usefulness of earnings releases is related to the magnitude of new information in the release, the persistence of earnings innovations, the firm‐specific mapping between earnings and returns, and prior uncertainty about earnings.
Research limitations/implications
This paper examines forecast revisions only soon after earnings announcements. Future research should examine more general determinants of analysts' forecast revision activity.
Originality/value
This paper provides evidence about determinants of forecast revision frequency, a measure of how actively financial analysts provide information, an extension of prior research that focuses on analyst following as a measure of information environments.
Details
Keywords
Kate Jelinek and Pamela S. Stuerke
This paper aims to examine the impact of managerial equity ownership on return on assets as a measure of profitability and two financial statement‐based agency cost measures, i.e…
Abstract
Purpose
This paper aims to examine the impact of managerial equity ownership on return on assets as a measure of profitability and two financial statement‐based agency cost measures, i.e. asset utilization and an expense ratio, which proxy for management's efficiency in use of assets and perquisite consumption, respectively.
Design/methodology/approach
Multivariate tests are constructed to examine the nonlinear relation between managerial equity ownership and both profitability and agency costs, using interaction terms to capture the relation at various levels of managerial ownership.
Findings
The paper documents that managerial equity ownership is nonlinearly and positively associated with return on assets and asset utilization, and nonlinearly and negatively associated with the expense ratio, after controlling for firm size, leverage, corporate diversification, institutional ownership, research intensity, firm age, and executive stock options.
Research limitations/implications
The results imply that the ability of managerial equity ownership to reduce agency costs decreases as levels of ownership increase. Further, the results indicate that, in some industries, high levels of ownership lead to increased expense ratios, suggesting increased perquisite consumption. Finally, these results suggest that, above a certain level in some industries, managerial equity ownership only marginally encourages efficient asset utilization but does not significantly deter excessive spending.
Originality/value
The paper provides a link between research that demonstrates a linear relation between managerial equity ownership and financial‐statement based profitability and agency cost measures and research that finds a nonlinear relation between managerial equity ownership and Tobin's Q, a proxy for firm performance.
Details
Keywords
David Michayluk and Ralf Zurbruegg
This paper introduces readers to the International Journal of Managerial Finance, highlighting its value and scope to the academic and professional community.
Abstract
Purpose
This paper introduces readers to the International Journal of Managerial Finance, highlighting its value and scope to the academic and professional community.
Design/methodology/approach
This paper provides opinions of the editors on the nature and context of Managerial Finance as a research field.
Findings
Managerial Finance incorporates a broad number of subjects and the journal will provide a forum for the timely dissemination of research material in this area.
Research limitations/implications
The International Journal of Managerial Finance will actively promote research in the area of managerial finance and support, through conferences and special issues, the growth and interest in researching the financial decision‐making process.
Practical implications
Research in the area of managerial finance will benefit from a journal committed to enhancing and developing research and professional know‐how for managing financial decisions.
Originality/value
This introduction provides a synopsis of what the International Journal of Managerial Finance is interested in publishing as well as how it intends to support researchers in this area.