The Value Relevance of Revenues Beyond Earnings*

51 Pages Posted: 16 Sep 2004

See all articles by Uday Chandra

Uday Chandra

SUNY University at Albany

Byung T. Ro

Purdue University - Krannert School of Management

Date Written: September 15, 2004

Abstract

This study examines the role of information on revenues in valuing firms. It examines whether revenue has incremental ability to explain stock returns beyond earnings and whether this ability (1) is pervasive or it is limited to situations in which earnings are less informative, (2) has changed over time, and (3) is sensitive to nonlinearity in the relation between returns and earnings. The analysis indicates that revenue information is useful both as a summary measure of a firm's performance for valuation purposes and in conveying new information to the market, after controlling for earnings information. These results are not driven by technology firms, firms incurring losses, or firm-quarters with extreme earnings news, for which earnings information may be less useful, and are robust to model misspecification due to nonlinearity in the returns-earnings relation. Further, while the ability of revenues and earnings to summarize firm performance is stable across time, the new information conveyed by earnings has declined while the ability of revenues to convey new information is undiminished.

Suggested Citation

Chandra, Uday and Ro, Byung T., The Value Relevance of Revenues Beyond Earnings* (September 15, 2004). Available at SSRN: https://ssrn.com/abstract=590884 or http://dx.doi.org/10.2139/ssrn.590884

Uday Chandra

SUNY University at Albany ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States
518-442-9092 (Phone)

Byung T. Ro (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
765-494-4512 (Phone)
765-494-9658 (Fax)

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