Fundamental Information Analysis: An Extension and UK Evidence

Posted: 15 Feb 2000

See all articles by Martin Walker

Martin Walker

University of Manchester - Manchester Business School

Mamoun Al-Debie

University of Jordan

Abstract

This paper reports a replication and extension of the Fundamental Information Analysis of Lev & Thiagarajan (1993). Using data for a large sample of UK companies we examine the improvements in explanatory value that are achievable by allowing for both macro-economic state and industry variation in the response parameters of non-earnings signals. We interpret this evidence as a test of the beliefs of previous researchers who have suggested that the influence of non-earnings signals is likely to be more conditional than the influence of earnings. In particular we find that the most informative non-earnings signals are those relating to the operating margins and/or cost management of the firm. The final section of the paper reports the UK evidence for the existence of an inverse relation between the Lev & Thiagarajan measure of earnings quality and earnings response coefficients. In contrast to Lev & Thiagarajan we find no significant relation for UK companies.

JEL Classification: M41, G12, G14

Suggested Citation

Walker, Martin and Al-Debie, Mamoun, Fundamental Information Analysis: An Extension and UK Evidence. Available at SSRN: https://ssrn.com/abstract=202288

Martin Walker (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Mamoun Al-Debie

University of Jordan

Faculty of Business Administration
Amman 11942
JORDAN

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