Essays On The Determinants Of The Relation Between Stock Prices And Accounting Earnings

Author : Xiaoli Rao
Publisher :
ISBN 13 : 9781374711938
Total Pages : pages
Book Rating : 4.7/5 (119 download)

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Download or read book Two Essays on Information and Control Issues in Accounting? written by Xiaoli Rao and published by . This book was released on 2017-01-27 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, "Two Essays on Information and Control Issues in Accounting?" by Xiaoli, Rao, 饒曉莉, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of the thesis entitled Two Essays on Information and Control Issues in Accounting Submitted By Rao Xiaoli for the Degree of Master of Philosophy at The University of Hong Kong in October 2003 Abstract This thesis consists of two essays: 1. Has Earnings Information Become Less Useful for Financial Analysts and Investors? 2. Consequences of Group Affiliation: Evidence from Financial Statement and Stock Market -An Analysis of Hong Kong Business Groups. The first study investigates whether the usefulness of earnings information has changed in the last two decades, in the eyes of both analysts and investors, using data from U.S. firms. Contrary to assertions made by other studies, I find no consistent evidence that the earnings have lost its value relevance over time. My result shows that there is a significant increase in the analysts' earnings response coefficient, implying that analysts place more trust on earnings information than before. I also examine four factors (i.e., size, industry, earnings and stability) that are likely to contribute to changes in the EPS over time. It seems that both analysts' ERC and investors' ERC are higher for high- technology firms than for other firms. This is contrary to the argument that for firms with iilarge amounts of unrecorded intangibles, financial accounting information is of limited value. I find that the earnings of larger firms are more trusted by analysts than the earnings of small firms. Moreover, for analysts' ERC study, I also consider the possibility that analysts under-react to information (accounting and non-accounting) received during the year. My results show that analysts' consensus forecast revisions (in the year-end, upon receiving of earnings information) are positively correlated with the revision of forecasts during the year (before receiving earnings information), suggesting the existence of under-reaction. However, it does not alter my conclusion that analysts trust more on earnings information throughout the years. The second study examines whether affiliation with business groups is beneficial for firms. Firms affiliated with business groups can benefit from access to some internal institutions to mitigate external market failure. However, group affiliation may also involve the cost of tunneling, which could lead to inferior performance for lower-level firms within a group. I analyze the accounting and stock market performance of HK listed firms, and find that group affiliation is on average beneficial for HK listed firms, especially those affiliated with standard groups. Firms affiliated with business groups are better at efficiently using total assets to generate profit, and they have higher profit margins, suggesting that they are better at cost control. The results also indicate that firms affiliated with business groups are valued more in the stock market. My evidence does not consistently support the existence of tunneling behavior in the Hong Kong stock market. iii DOI: 10.5353/th_b2929484 Subjects: Corporate profits - Accounting Corporate profits - China - Hong Kong - Accounting