Sustained Earnings and Revenue Growth, Earnings Quality, and Earnings Response Coefficients

Ghosh, Al (Aloke); Gu, Zhaoyang; Jain, Prem C.

doi:10.2139/ssrn.404840

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Sustained Earnings and Revenue Growth, Earnings Quality, and Earnings Response Coefficients

36 Pages Posted: 12 May 2003

See all articles by Al (Aloke) Ghosh

Zhaoyang Gu

Chinese University of Hong Kong - School of Accountancy

Prem C. Jain

Georgetown University - Department of Accounting and Business Law

There are 2 versions of this paper

Date Written: June 2004

Abstract

We show that firms reporting sustained increases in both earnings and revenues have (1) higher quality earnings and (2) larger earnings response coefficients (ERCs) in comparison to firms reporting sustained increases in earnings alone. With respect to earnings quality, firms with revenue-supported increases in earnings have more persistent earnings, exhibit less susceptibility to earnings management, and have higher future operating performance. With respect to response coefficients, firms with revenue-supported increases in earnings have both higher ERCs and lower book value response coefficients, consistent with the implications of the Ohlson (1995) model.

Keywords: earnings growth, revenue growth, earnings quality, earnings response coefficients

JEL Classification: G12, M41, M43

Suggested Citation: Suggested Citation

Ghosh, Al (Aloke) and Gu, Zhaoyang and Jain, Prem C., Sustained Earnings and Revenue Growth, Earnings Quality, and Earnings Response Coefficients (June 2004). Available at SSRN: https://ssrn.com/abstract=404840 or http://dx.doi.org/10.2139/ssrn.404840