Attrition bias and inferences regarding earnings properties; evidence from Compustat data

56 Pages Posted: 21 Sep 2017 Last revised: 19 Aug 2020

See all articles by Peter D. Easton

Peter D. Easton

University of Notre Dame - Department of Accountancy

Martin Kapons

Tilburg University

Peter Kelly

University of Notre Dame

Andreas Neuhierl

Washington University in St. Louis - John M. Olin Business School

Date Written: August 18, 2020

Abstract

On average, across the years 1980 to 2018, almost 8.5 percent of firms on the Compustat Annual data set, which had earnings observations in year t-1, did not have earnings observations in year t. Because these disappearances were not random, there is attrition bias in estimates of earnings properties that require earnings observations in two consecutive years: namely, earnings persistence (used as an estimate of earnings quality), mean reversion, and accuracy of forecasts of earnings that are based on earnings of the prior year. We suggest three methods for imputing the disappeared earnings observations, which may be useful in future research on earnings properties. We show that conclusions about the properties of earnings change when we use imputed earnings to reduce the effects of attrition bias.

Keywords: earnings, forecasts

JEL Classification: G14

Suggested Citation

Easton, Peter D. and Kapons, Martin and Kelly, Peter and Neuhierl, Andreas, Attrition bias and inferences regarding earnings properties; evidence from Compustat data (August 18, 2020). Available at SSRN: https://ssrn.com/abstract=3040354 or http://dx.doi.org/10.2139/ssrn.3040354

Peter D. Easton

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-6096 (Phone)
574-631-5127 (Fax)

Martin Kapons

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Peter Kelly (Contact Author)

University of Notre Dame ( email )

251 Mendoza
South Bend, IN 46637
United States

Andreas Neuhierl

Washington University in St. Louis - John M. Olin Business School ( email )

St. Louis, MO
United States

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