[This study adds to recent research that assesses the value implications of earnings changes. Stock price changes associated with reported earnings innovations (typically assessed by estimating earnings response coefficients) have been characterized as related to the persistence of earnings, which is defined as the revision in expected future earnings that is implied by a current earnings innovation. Permanent earnings innovations are associated with higher multipliers than transitory ones. This stream of research stems from Kormendi and Lipe (1987) and Easton and Zmijewski (1989). These studies characterize earnings persistence as a stationary, firm-specific phenomenon that describes the evolution of earnings over time. They estimate parameters of earnings persistence from time-series data on earnings and then show that the market's pricing of earnings innovations are related to the persistence measures. Typically, this evaluation involves ex post information, so the approach is not relevant for investors' ex ante determination of pricing multipliers. This article reports three findings on the pricing of annual earnings changes. First, pricing multipliers can be evaluated contemporaneously by other information published in annual financial statements along with earnings. An investor who seeks to assess persistence and the price effect of a reported earnings change can do so by referring to other information in the financial statements. Second, in contrast to previous research, this study shows that the earnings persistence indicated by financial statements is not a fixed attribute, but changes over time and tends to revert to the mean of all firms. Correspondingly, pricing multipliers follow a similar pattern, which requires their periodic updating through financial statement analysis. Third, the multiplier of earnings changes is also related to information published in the previous year's annual report. To the extent that previous accounting reports provide forecasts of earnings that are already incorporated in prices, multipliers are lower

This study adds to recent research that assesses the value implications of earnings changes. Stock price changes associated with reported earnings innovations (typically assessed by estimating earnings response coefficients) have been characterized as related to the persistence of earnings, which is defined as the revision in expected future earnings that is implied by a current earnings innovation. Permanent earnings innovations are associated with higher multipliers than transitory ones. This stream of research stems from Kormendi and Lipe (1987) and Easton and Zmijewski (1989). These studies characterize earnings persistence as a stationary, firm-specific phenomenon that describes the evolution of earnings over time. They estimate parameters of earnings persistence from time-series data on earnings and then show that the market's pricing of earnings innovations are related to the persistence measures. Typically, this evaluation involves ex post information, so the approach is not relevant for investors' ex ante determination of pricing multipliers. This article reports three findings on the pricing of annual earnings changes. First, pricing multipliers can be evaluated contemporaneously by other information published in annual financial statements along with earnings. An investor who seeks to assess persistence and the price effect of a reported earnings change can do so by referring to other information in the financial statements. Second, in contrast to previous research, this study shows that the earnings persistence indicated by financial statements is not a fixed attribute, but changes over time and tends to revert to the mean of all firms. Correspondingly, pricing multipliers follow a similar pattern, which requires their periodic updating through financial statement analysis. Third, the multiplier of earnings changes is also related to information published in the previous year's annual report. To the extent that previous accounting reports provide forecasts of earnings that are already incorporated in prices, multipliers are lower