The Effect of Earning Persistence and Components of Earning on the Predictability of Earning: Evidence from an Emerging Market
Oct 10, 2018
DOI:
Published in: Journal
Publisher: International Journal of Economic & Business Research
This study investigates the relationship between persistence of earning and the components of earning on the predictability of earning in an emerging market after the adoption of International Financial Reporting Standards IFRS during 2008-2015. The sample firms consist of 143 nonfinancial firms listed on the Egyptian stock exchange for the period 2008-2015 as extracted from Gale Business Insights: Global by Thomson Reuters and from financial statements published on the company’s websites. The current study uses three models. In the first model, future earning has been regressed on current earning to investigate the persistence of aggregate earning. The second model measured total accrual in terms of operating accrual using information from the balance sheet and income statement. Then, the third model was disaggregated accrual into working capital accrual, noncurrent operating accrual and financial accrual to examine the differential persistence of accrual components. The results of the study confirm the persistence of earning for the sample firms. However, the accrual component has more persistence than the cash flow component. This could be interpreted by the accrual anomalies, supported by the weakness of the institutional and legal environments, which seem to be encouraged by firms presenting their financial statements under IFRS. Moreover, the enhancement of professional judgment in the accounting environment after the adoption of IFRS, which is principles based standards, may provide another justification for the aforementioned result. The results also imply that the persistence of accrual is affected by their faithful representation as less faithful representational accrual components have lower persistence than more faithful representational accrual components. This paper evaluates the predictability of earning attributed to persistence of earning components in an emerging market. Most prior studies have tested the phenomenon in developed markets. The paper extends the literature that addresses the second fundamental quality of qualitative characteristics of accounting information, (i.e., faithful representation and its effect on accounting numbers). This study also considers the effect of IFRS on the predictability of earnings in an emerging market as it is assumed to increase the level of judgment available to firms as they develop principles-based standards.
Other Researches
Ownership structures and corporate governance: A systematic analysis
This study aimed to analyze the ownership structures and corporate governance. Good corporate governance helps companies become more efficient, improve access to finance, reduce risk, and avoid substandard governance (Kontogeorga et al., 2022; Musta...
Behavioral biases in trade credit policy: does it matter for financial performance?
Purpose: Corporate firms often follow their peer firms to articulate multiple financial decisions. Among the others, trade credit policy is a vital financial decision that can impart its dynamic role in achieving financial efficiency. Therefore, the...
This paper studied how firm governance affects the performance of quoted deposit money banks in Nigeria. The paper aimed to ascertain the effects of board size, board composition, and gender diversity after controlling for firm age and firm size on ...
Accrued Forecasting On Tourist’s Arrival In Bangladesh For Sustainable Development
Forecasting of potential tourists' appearance could assume a critical role in the tourism industry, arranging at all levels in both the private and public sectors. In this study our aim to build an econometric model to forecast worldwide visitor str...
Abstract: Purpose: The study aims to investigate the relationship between the impact of the development of accounting pronouncements and the extent to which accounting can or should contribute to the pursuit of economic & social developments, and t...
Governance mechanisms and earnings management practices: evidence from Egypt
This study develops an aggregate corporate governance index (ACGINX) composed of four individual corporate governance (CG) indices – disclosure and transparency index, board of directors index (BoDINX), shareholders’ rights and investor relations i...
The audit firms seek to gain new clients and to retain their existing ones in order to expand and increase the size of their share in the market. However, the aforementioned sought may often interfere with the quality of the audit process, once atta...
Feasibility study of a private school in the United Arab Emirates
The paper investigates the setting up of a private school in the emerging market of Al Ain, United Arab Emirates. The study adopts common criteria for conducting a feasibility study, and develops pro forma financial statements. The findings show tha...
It has been argued that companies with more comprehensive corporate governance mechanisms have value premium over their counterparts with less comprehensive ones. In this regards, the current study aims to investigate the effect of internal governan...
Academic Risk Measures and Audit Qualifications: Evidence from Egypt
This paper aims to empirically investigate the ability of five academic risk measures, i.e., Working Capital Accruals (WC_ACC), Beneish's MSCORE, Dechow et al.'s FSCORE, the Modified Jones Model (DSS) and Pustylnik's Combined Algorithm Score, to det...
This paper aims to examine the persistence of the historically assumed accounting values of the Egyptian environment in terms of conservatism, secrecy and statutory control after the adoption of the latest versions of the Egyptian Accounting Standar...
This study aims to examine the value relevance of the bottom lines of the financial statements in the Egyptian context after the inception of the new version of Egyptian Accounting Standards of 2006. Considering the tradition accounting value of con...