The Decline in Quarterly Earnings Persistence
Posted: 28 May 2001
Date Written: February 2001
Although prior research has documented a decline in earnings relevance for equity investors through time, precise evidence has not been collected on why the decline has occurred. Possible reasons for changes in earnings relevance identified in the literature include changes in persistence, growth, discount rates, lead-lag relationships between returns and earnings, and disclosure activity. For a sample of 172 New York Stock Exchange firms, we document a substantial decline in the persistence of quarterly accounting earnings over the 1967 to 1990 period. Our findings hold regardless of whether firms are in intangible-intensive industries and whether firms are in industries with dramatic increases in spending on information technology through time. Further, ex ante measures of expected economic change (i.e., firm size, expenditures to create barriers-to-entry, and product type) are intertemporally invariant in our sample, and we find that a key ex post measure of economic change, quarterly sales persistence, does not experience a decline through time for our sample firms.
JEL Classification: M41, M45, G12
Suggested Citation: Suggested Citation