Measuring the impact of sales on earnings and equity price

Measuring the impact of sales on earnings and equity price In this paper we examine how sales affect earnings and in turn the stock price using a model in which sales contribute to earnings by a fixed sales margin rate and the stock price responds more sensitively to sales-induced earnings than to non-sales-induced earnings. We report that the regression coefficient of the sales margin (2.54) is about three times the earnings response coefficient (0.85) for the full sample and can be as high as 19 times the earnings response coefficient for an industry (i.e., 11.95 vs. 0.62 for restaurants). We contribute to the literature by identifying and documenting factors that make separating out the sources of earnings more important in equity pricing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Measuring the impact of sales on earnings and equity price

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Publisher
Springer US
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-008-0086-7
Publisher site
See Article on Publisher Site

Abstract

In this paper we examine how sales affect earnings and in turn the stock price using a model in which sales contribute to earnings by a fixed sales margin rate and the stock price responds more sensitively to sales-induced earnings than to non-sales-induced earnings. We report that the regression coefficient of the sales margin (2.54) is about three times the earnings response coefficient (0.85) for the full sample and can be as high as 19 times the earnings response coefficient for an industry (i.e., 11.95 vs. 0.62 for restaurants). We contribute to the literature by identifying and documenting factors that make separating out the sources of earnings more important in equity pricing.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Feb 20, 2008

References

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