Essays on Earnings Strings in Capital Markets
Thesis or dissertation
University of Exeter
This study is motivated by the observed valuation premiums given to firms that meet or beat earnings thresholds. The extensive literature on meeting or beating earnings benchmarks documents that firms tend to report profits, earnings increases, and positive earnings surprises relative to analysts’ earnings forecasts. Evidence indicates that firms who achieve earnings targets economically enjoy higher price-earnings multiples, higher abnormal returns, and lower cost of debt. However, it still leaves several important issues open to investigation. Therefore, this thesis mainly investigates why valuation premiums exist in the presence of consecutively meeting or beating prior period’s earnings (earnings strings). The results strongly suggest that valuation premiums are driven by firm fundamentals, growth, risk, and combinations of these factors.
PhD in Accountancy