Estimating earnings response coefficients: Pooled versus firm-specific models

Estimating earnings response coefficients: Pooled versus firm-specific models Short-window earnings response coefficients estimated from pooled time-series cross-sectional regressions are systematically smaller than corresponding averages of firm-specific coefficients estimated from time-series regressions. The cause is a negative relation between firm-specific earnings response coefficients and unexpected earnings variances. If the hypotheses of equality of firm-specific coefficients and equality of firm-specific unexpected earnings variances are rejected, firm-specific estimation should be used instead of pooled estimation. Using pooled estimation may lead to incorrect inferences about the magnitude of estimated coefficients and/or incorrect inferences about differences in coefficient behavior between groups of firms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Estimating earnings response coefficients: Pooled versus firm-specific models

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Publisher
Elsevier
Copyright
Copyright © 1996 Elsevier Ltd
ISSN
0165-4101
DOI
10.1016/0165-4101(96)00423-5
Publisher site
See Article on Publisher Site

Abstract

Short-window earnings response coefficients estimated from pooled time-series cross-sectional regressions are systematically smaller than corresponding averages of firm-specific coefficients estimated from time-series regressions. The cause is a negative relation between firm-specific earnings response coefficients and unexpected earnings variances. If the hypotheses of equality of firm-specific coefficients and equality of firm-specific unexpected earnings variances are rejected, firm-specific estimation should be used instead of pooled estimation. Using pooled estimation may lead to incorrect inferences about the magnitude of estimated coefficients and/or incorrect inferences about differences in coefficient behavior between groups of firms.

Journal

Journal of Accounting and EconomicsElsevier

Published: Jun 1, 1996

References

  • Noisy accounting earnings signals and earnings response coefficients: The case of foreign currency accounting
    Collins, Daniel W.; Salatka, William K.
  • Nonlinearity in the returns-earnings relation: Tests of alternative specifications and explanations
    Das, Somnath; Lev, Baruch
  • Applied linear statistical models
    Neter, John; Wasserman, William
  • Econometric models and economic forecasts
    Pindyck, Robert S.; Rubenfeld, Daniel L.

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