Long-Run Stock Returns Following Briloff's Analyses

Posted: 8 May 2004  

Hemang Desai

Southern Methodist University - Cox School of Business

Prem C. Jain

Georgetown University - Department of Accounting and Business Law

Abstract

Abraham Briloff is well known for more than four decades of insightful analysis and criticism of the accounting practices of various companies. His critiques, in the form of articles published in Barron's, consist of detailed financial analyses of the questionable accounting practices of the companies he examines. Previous research has shown that the companies criticized by Briloff in Barron's experience significant negative abnormal returns around the article's publication date. To understand the valuation effect associated with his financial analyses, this article examines long-run abnormal returns following the publication date. In addition to the initial negative reaction on publication of the articles, the companies in the sample experienced further significant risk-adjusted returns for one and two years of, respectively, -15.51 percent and -22.88 percent. The results show that a decline in future operating performance appears to be an important reason for the poor stock market performance of the companies. Thus, Briloff could apparently foresee the coming decline in operating performance better than the market could. These results underscore the importance of understanding a company's accounting and of the role of careful financial statement analysis.

Keywords: Equity Investments: Fundamental Analysis and Valuation Models, Research Sources

JEL Classification: G14, M41, M43

Suggested Citation

Desai, Hemang and Jain, Prem C., Long-Run Stock Returns Following Briloff's Analyses. Financial Analysts Journal, Vol. 60, No. 2, pp. 47-56, March/April 2004. Available at SSRN: https://ssrn.com/abstract=541042

Hemang Desai (Contact Author)

Southern Methodist University - Cox School of Business ( email )

Cox School of Business
6212 Bishop Blvd.
Dallas, TX 75275-0333
United States
214-768-3185 (Phone)
214-768-4099 (Fax)

Prem C. Jain

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States
202-687-2260 (Phone)

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