Knowledge that Transforms

Disclosures, Loss contingency, CAR, Earnings quality

Kenton B. Walker, Lawrence A. McClelland, Management Forecasts and Statistical Prediction Model Forecasts in Corporate Budgeting, Journal of Accounting Research, Vol. 29, No. 2 (Autumn, 1991), pp. 371-381

Analyst forecasts, Earnings forecast error persistence, Analyst forecast revisions

Auditing, Auditor decision making, Uncertainty qualifications, Auditor decision aid

Disclosures, Private information market, Selective private disclosures

Earnings announcements, Stock price response, Time-series process, Uncertainty

Disclosures, Investor sophistication, Information availability, Risk sharing

In this paper we investigate whether the level of earnings divided by price at the beginning of the return period is relevant for evaluating earnings/returns associations.' The primary model motivating this research relies on the idea that book value (owners' equity) and market value are both stock variables indicating the wealth of the firm's equity holders. The related flow variables (after adjusting for dividends) are, respectively, earnings divided by price at the beginning of the return period (A/P-1) and market returns. It then follows that earnings divided by beginning of period price should be associated with returns. Although models based on a relation between market value and book value are used occasionally in the accounting research literature (see, for example, Landsman [1986], Harris and Ohlson [1987], and Barth

Earnings management, Jones model, Import relief, Discretionary accruals

Analyst forecasts, Analyst forecast consensus, Market association, Timely aggregate analyst forecasts