Permanent and transitory earnings, accounting recording lag, and the earnings coefficient

Peter Easton, Pervin Shroff, Gary Taylor

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

In this paper, (1) we define precisely the terms permanent and transitory earnings; (2) we delineate the effects of the degree of permanence and of accounting recording lag on estimates of the slope coefficient from a returns-earnings regression and (3) we examine the relation between the estimates of the earnings coefficient and observable variables that may indicate (i) the extent to which earnings are more or less permanent, and (ii) the extent to which value relevant events are recorded in accounting earnings in a timely fashion. Our main point is that attributing differences in the returns-earnings relation to one of these effects without controlling for the other may lead to erroneous conclusions.

Original languageEnglish (US)
Pages (from-to)281-300
Number of pages20
JournalReview of Accounting Studies
Volume5
Issue number4
DOIs
StatePublished - Jan 1 2000

Keywords

  • Earnings coefficient and value relevance
  • Permanent earnings
  • Recording lag
  • Transitory earnings

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