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  • Publication
    Accès libre
    Financial development, intangible investments, and the evolution of earnings quality
    We contribute to the ongoing debate on the reason for the decline in earnings qual- ity (EQ) documented by prior literature. We argue that Srivastava (2014)’s explanation that “each new cohort of listed firms exhibits lower earnings quality than its predecessors, mainly because of higher intangible intensity” may not be satisfactory. Instead, we assert that the downward trend in the EQ measures of successive cohorts reflects a progressive decrease in newer firms’ business effectiveness, as measured by profitability, operational efficiency, and economic risk. This is a direct result of easier access to public funding brought about by the 1970s trend change in the state of development of the U.S. finan- cial sector (Rajan and Zingales, 2003). Our explanation strictly encompasses Srivastava (2014)’s. While for newcomers in specific industries lower business effectiveness is as- sociated with higher intangible intensity, the lack of fit of most of the new listings is not explained by their investments in intangibles. They are simply weaker, riskier firms and have lower EQ as a result.
  • Publication
    Accès libre
    Essays on the relationship between stock prices and accounting variables
    Starica and Marton (2019) soutiennent qu’une méthode d’estimation non linéaire basée sur des algorithmes de Machine Learning simples et flexibles peut résoudre plusieurs problèmes de modélisation économétrique afin d’évaluer la relation entre les cours des actions et les bénéfices comptables. Dans cette thèse, nous utilisons leurs avancées méthodologiques pour aborder trois problèmes de comptabilité financière. Premièrement, nous utilisons la technique d’estimation qu’ils proposent pour mesurer l’association que les cours des actions ont avec les bénéfices comptables et les flux de trésorerie, respectivement. Deuxièmement, nous suggérons une explication selon laquelle l’association entre les cours des actions et les bénéfices comptables semble avoir diminué au cours des deux dernières décennies. Dans cette thèse, nous utiliserons le terme anglais “accruals” pour indiquer la di_érence entre les bénéfices comptables (traduits comme “accounting earnings”) et les flux de trésorerie (traduits comme “operating cash flows”). Nos résultats suggèrent qu’un changement de corrélation entre accruals et flux de trésorerie est la raison la plus probable du phénomène mentionné ci-dessus, et, par conséquent, les flux de trésorerie sont devenus au moins aussi importants que les bénéfices comptables au cours de ces vingt dernières années. Troisièmement, nous cherchons à savoir si le degré d’association entre les cours des actions et les bénéfices comptables dépend de la qualité de la comptabilité d’exercice. Nous observons qu’en moyenne, les bénéfices comptables obtenus à partir d’une comptabilité d’exercice de meilleure qualité sont plus pertinents pour l’évaluation, parmi les entreprises dont les cours des actions sont comparables, ansi qu’une incertitude opérationnelle et des “timing-errors” similaires. ABSTRACT : Starica and Marton (2019) argue that a nonlinear estimation method based on simple, flexible Machine Learning algorithms can solve several econometric modeling issues in order to assess the relationship between stock prices and accounting earnings. In this thesis, we use their methodological advancements to address three problems in financial accounting. First, we use the estimation technique they propose to measure the association that stock prices have with accounting earnings and operating cash flows. Second, we suggest an explanation behind the stylized fact that the association between stock prices and accounting earnings has decreased in the last two decades. We argue that a change in the correlation between accruals and cash flows is the most likely reason for this phenomenon, and, consequently, our results suggest that cash flows have become at least as relevant as earnings in these last twenty years. Third, we investigate whether the degree of association between stock prices and earnings depends on the quality of accruals. Our findings suggest that, on average, higher-quality earnings are more pertinent to valuation among firms that have comparable prices, operating uncertainty, and size of timing errors.
  • Publication
    Restriction temporaire
    Economic determinants of the dynamics of income quality
    (Faculty of Economics and Business Institut of Information Management, 2020)
  • Publication
    Accès libre
    Earnings to price relation in the age of AI
    (Faculty of Economics and Business Institut of Information Management, 2020)
  • Publication
    Accès libre
    Why have measures of earnings quality changed over time? A competing narrative
    We contribute to the debate on the reason for the decline in earnings quality (EQ) documented by prior literature. We dissent from Srivastava (2014)’s conclusion that “each new cohort of listed firms exhibits lower earnings quality than its predecessors, mainly because of higher intangible intensity”. Instead, we argue that the downward trend in EQ measures is explained by changes in firms’ economic risk and operational efficiency associated with “broadening of the kinds of firms publicly traded” (Fama and French (2004)). The association of intangible intensity to EQ measures is spurious and disappears when controlling for the mentioned firm’s characteristics.
  • Publication
    Accès libre
    The ebbing of accrual accounting
    This paper investigates the evolution of accruals ability to improve the information content of earnings over cash flows, as reflected in market prices. We documented a pronounced decline in the price association of earnings relative to cash flows. We find that, after year 2000, cash flows have informed prices at least as much as earnings. We explain the decline in earnings price association through the decrease of the timing role of accruals related to the growth in the frequency and the magnitude of non-timing accruals (Bushman et al. 2016). Our results imply that this evolution of accruals has severely limited the information content of earnings and, consequently, significantly weakened the pertinence of accrual accounting to prices.
  • Publication
    Accès libre
    Assessing the price-earnings association in the age of machine learning
    Most of the seminal papers mapping the relation between earnings and security prices predate the recent exponential developments in the field of machine learning. Our analysis is an example of how the new powerful non-linear estimation techniques and three dimensional visualization of data can provide the accounting researcher with new insights and/or help her document more forcefully patterns predicted by theoretical considerations. We show that state-of-the-art linear models are problematic for hypothesis testing when fit to the non-linear relation between share prices and earnings. To bring remedy to the failure of linear modeling, we introduce a non-linear research design based on rigorous statistical considerations and accounting input and which consistently estimates prices’ relation to earnings. We validate the non-linear research design by verifying that the non-linear levels regression earnings-response coefficients (ERC) have the ’right’ size and yield economically justifiable risk-premium values. Consequently, the non-linearity of the price-earnings association provides a simple explanation for the small ERCs observed by prior research based on the linear model.
  • Publication
    Accès libre
    Accounting information vs. analysts forecasts in market’s expectations formation
    We find that the expectations about future earnings incorporated in prices are mainly informed by the analysts earnings forecasts. Neither the stock nor the flow accounting items considered do not contribute significantly to shaping investors price setting expectations.
  • Publication
    Accès libre
    Accounting information vs. analysts forecasts in market’s expectations formation
    We find that the expectations about future earnings incorporated in prices are mainly informed by the analysts earnings forecasts. Neither the stock nor the flow accounting items considered do not contribute significantly to shaping investors price setting expectations.
  • Publication
    Accès libre
    What kind of earnings shape more market expectations?
    We study how earnings attributes affect investors expectations about future earnings reflected in market prices. We separate the contribution of current earnings to price setting through a valuation incorporating expectations informed only by the current value of earnings. Its pricing error measures the extent to which expectations are shaped by information other than current earnings. We estimate the association between this pricing error and eleven earnings quality constructs commonly used in the empirical literature using a large sample of US non-financial firms over the period 1971-2016. We find that, above all, quality earnings vary little (are sustainable) and are predictive of future earnings. Moreover, their low volatility is shared by their accrual component and is not due to aggressive smoothing. We document that time-series accrual quality proxies subsume measures based on popular residual accruals models in shaping expectations. How often firms report special items has a significant impact on current earnings relevance to expectation formation: the less often, the better.