Business Cycles and the Relation between Security Returns and Earnings

Business Cycles and the Relation between Security Returns and Earnings This paper examines business cycle variation in the earnings-returns relation. Earnings are more persistent when growth rates are high (i.e., in an expansion) than when growth rates are low (i.e., in a recession). Earnings are more persistent when production is high (i.e., in a credit crunch period) than when production is low (i.e., in a reliquification period). Relatedly, earnings response coefficients are larger in expansions (credit crunch periods) than in recessions (reliquification periods). Thus, earnings persistence and earnings response coefficients are positively associated with the rate of growth in economic activity and the level of economic activity. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Business Cycles and the Relation between Security Returns and Earnings

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Publisher
Springer Journals
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1009649018325
Publisher site
See Article on Publisher Site

Abstract

This paper examines business cycle variation in the earnings-returns relation. Earnings are more persistent when growth rates are high (i.e., in an expansion) than when growth rates are low (i.e., in a recession). Earnings are more persistent when production is high (i.e., in a credit crunch period) than when production is low (i.e., in a reliquification period). Relatedly, earnings response coefficients are larger in expansions (credit crunch periods) than in recessions (reliquification periods). Thus, earnings persistence and earnings response coefficients are positively associated with the rate of growth in economic activity and the level of economic activity.

Journal

Review of Accounting StudiesSpringer Journals

Published: Sep 30, 2004

References

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