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Stock Prices and Earnings: A History of Research

Annual Review of Financial Economics, Vol. 6: 343 -363 (Volume publication date December 2014).

41 Pages Posted: 30 Oct 2013 Last revised: 26 Feb 2015

Patricia M. Dechow

University of Southern California - Leventhal School of Accounting; University of California, Berkeley - Accounting Group

Richard G. Sloan

University of California, Berkeley - Accounting Group; University of Southern California - Leventhal School of Accounting

Jenny Zha Giedt

George Washington University - School of Business

Date Written: October 18, 2013

Abstract

Accounting earnings summarize periodic corporate financial performance and are key determinants of stock prices. We review research on the usefulness of accounting earnings, including research on the link between accounting earnings and firm value and research on the usefulness of accounting earnings relative to other accounting and nonaccounting information. We also review research on the features of accounting earnings that make them useful to investors, including the accrual accounting process, fair value accounting, and the conservatism convention. We finish by summarizing research that identifies situations in which investors appear to misinterpret earnings and other accounting information, leading to security mispricing.

Keywords: earnings, stock prices, accruals, conservatism, fair value, anomalies

JEL Classification: G12, M41

Suggested Citation

Dechow, Patricia M. and Sloan, Richard G. and Zha Giedt, Jenny, Stock Prices and Earnings: A History of Research (October 18, 2013). Annual Review of Financial Economics, Vol. 6: 343 -363 (Volume publication date December 2014). . Available at SSRN: https://ssrn.com/abstract=2347193 or http://dx.doi.org/10.2139/ssrn.2347193

Patricia M. Dechow

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

University of California, Berkeley - Accounting Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

Richard G. Sloan (Contact Author)

University of California, Berkeley - Accounting Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

Jenny Zha Giedt

George Washington University - School of Business ( email )

Washington, DC 20052
United States

HOME PAGE: http://www.jennyzha.com

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