Voluntary Disclosure of the Components of Revenue Growth

43 Pages Posted: 25 May 2011

See all articles by Luann J. Lynch

Luann J. Lynch

University of Virginia - Darden School of Business

Grace Pownall

Emory University - Department of Accounting

Paul J. Simko

University of Virginia - Darden School of Business

Date Written: May 20, 2011

Abstract

In this study we examine the valuation implications for different sources of growth. Specifically, we investigate whether supplemental information provided by firms to assist financial statement users in understanding the sources of growth is reflected in a premium to those firms. We examine a unique sample of firms that voluntarily choose to provide detail about their levels of organic revenue growth. Results indicate that firms that are larger, with lower research and development expenditures, and with higher intangible assets are those more likely to provide detailed disclosures about revenue growth components, all characteristics consistent with incentives to provide additional transparency regarding revenue growth. In regressions of returns on earnings disaggregated into revenue growth and costs, we find evidence that there is indeed a valuation premium to organic growth relative to non-organic growth. These findings are consistent with investors viewing the organic growth component of revenues as more persistent than the non-organic component of growth. Consistent with this interpretation, we document significant persistence of organic revenue across periods and a notable lack of such persistence for non-organic revenue growth.

Keywords: revenue growth, organic growth, earnings response coefficients, disclosure incentives

JEL Classification: D8, K2, M4, G1

Suggested Citation

Lynch, Luann J. and Pownall, Grace and Simko, Paul, Voluntary Disclosure of the Components of Revenue Growth (May 20, 2011). Available at SSRN: https://ssrn.com/abstract=1851692 or http://dx.doi.org/10.2139/ssrn.1851692

Luann J. Lynch

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

Grace Pownall

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States

Paul Simko (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-1391 (Phone)

HOME PAGE: http://www.darden.virginia.edu/faculty/simko.htm

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
197
Abstract Views
1,644
rank
188,970
PlumX Metrics