• Asia-Pacific Journal of Business
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• v.13 no.4
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• pp.109-121
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• 2022

Purpose - This study investigates how earnings volatility influences current stock price informativeness about expectations of future earnings. Design/methodology/approach - I adopt the FERC model developed by Collins et al. (1994) and modified by Lundholm and Myers (2002) to investigate the connection between earnings volatility and future earnings reflected in current returns. I define five-year rolling standard deviations of earnings and components as earnings volatility measures and the degree of deviation of earnings from cash flows over the same five-year, which is developed by Jayaraman (2008). Finding - My results show that earnings volatility delays current stock price response to future operation expectations. They also verify that as earnings are more divergent from cash flows, current returns are less timely incorporating value-relevant future operation. Research implications or Originality This study shows that when volatile earnings deliver obscure and unreliable information about future operation expectations, they cause the market to be conflicting in understandings their implications and make it difficult in attaining correct future cashflow estimates.

• Asia-Pacific Journal of Business
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• v.14 no.4
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• pp.255-273
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• 2023

Purpose - This study examines whether internal control has an effect on stock price informativeness about future earnings. High quality internal control provides continuous assurance for the quality of financial reports, and these future earnings-related information is accurately reflected in the current stock price. Design/methodology/approach - This study collected 12,862 data from 2006 to 2021 in China to make an empirical analysis using the future earnings response coefficient (FERC) and the multiple regression analysis were hired in order to analyze the data. Findings - We find that internal control strengthens the association between current returns and future earnings, indicating that more information about future earnings is reflected in current stock prices. This positive effect exists in both the main board market and the growth enterprise market of China's stock market, especially in the main board market after the implementation of the internal control policy. In addition, we find that the positive effect is weaker for firms that report internal control deficiencies or receives non unqualified internal control audit opinions. The results using earnings persistence yield similar findings, further supporting the results based on the FERC model. Research Implications or Originality - Our tests provide strong evidence that the quality of internal control affects FERC in China stock market.

• Journal of the Korea Convergence Society
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• v.8 no.11
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• pp.363-372
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• 2017

This study analyzed how management earnings forecasts would have an effect on future earnings quality. The analysis period of study was from 2003 till 2009 (ofrom 2004 till 2011) based on variables of interest (dependent variables) and the annual data from a total of 475 companies that publicly announced manager's operating earnings forecasts among securities listing companies were used for analysis. As a result, first, it appeared that the more optimistic the manager's earnings forecasts were for the current term, the lower the future earnings quality was. Second, it was found that the lower the accuracy of the manager's earnings forecasts was for the current term, the lower the future earnings quality was. Such findings suggest that management earnings forecasts will be used for determining future earnings quality.

• The Journal of the Korea Contents Association
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• v.17 no.6
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• pp.319-328
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• 2017

Earnings management is a collection of management decisions which firms do not report the true performance. Many prior studies suggest that earnings management could be the results of either managerial earnings management or manager's private information for future performance. This study attempts to delve into the fundamental implications inherent in earnings management by analyzing how earnings management affects future firm performance in public institutions. If discretionary accruals as a measurement of earnings management embrace manager's private information, it will have a positive effect on future performance in succeeding period. In contrast, if discretionary accruals embrace manager's opportunistic earnings management, it will have a negative effect on future performance in succeeding period. Empirical findings are summarized as following.: Earnings managements are negatively associated with future firm performance for all succeeding period. This negative relationship continues for all succeeding period. The overall results can be serve as a evidence that the discretionary accruals capture opportunistic earnings management on average.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.3
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• pp.73-85
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• 2020

The study aims to provide better understanding of sustainable earnings by a comprehensive analysis of earnings persistence of business firms in Vietnam as an example of developing economies in South-East Asia. Dataset of 1,278 publicly listed firms (excluding banking and financial services firms) on Vietnam Stock Exchange for the period from 2008 to 2017 was collected. By applying fixed effect regression model, the empirical results provided the basis to measure the persistence index (Pers index) and find low level of their earnings persistence. The literature of earnings quality analysis in developed countries suggests earnings persistence as a noteworthy determinant of future earnings forecast and stock valuation. However, research of sustainable earnings in developing countries is still highly underdeveloped. For Vietnamese listed firms, the average Pers index was estimated for the period from 2008 to 2010, indicating low level of earnings persistence. We also incorporated earnings persistence level into future earnings forecast by running the quintile regression model divided the data into four equal levels and conducted each section independently to see the difference in each percentile, thence assessed the factors' influence on the specific model. The findings provide important information on the expected returns of firms, especially helping investors make sound decisions.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.5
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• pp.31-40
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• 2020

This study investigates whether other comprehensive income (OCI) reported in the statement of comprehensive income (one of the main financial statements after the adoption of K-IFRS) predicts a firm's future performance. Using the quarterly data of Korean listed companies, we examine the association between OCI estimates and future earnings. First of all, we find that OCI is positively associated with earnings in both 1- and 2-quarter ahead, supporting the predictive value of OCI. When we break down OCI into its individual components, our results suggest that the net unrealized gains/losses on available-for-sale (AFS) investment securities are positively associated with future earnings, while the other components (e.g., net unrealized gains/losses on valuation of cash flow hedge derivatives) present insignificant results. In addition, we investigate whether the reliability in OCI estimates enhances the predictive value of OCI to predict future performance. We find that the predictive ability of OCI, in particular the net unrealized gains/losses on available-for-sale (AFS) investment securities, becomes more pronounced when firms are audited by the Big 4 audit firms. Overall, our study suggests that information content embedded in OCI can provide decision-useful information that is helpful for the prediction of future firm performance.

• The Journal of Asian Finance, Economics and Business
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• v.8 no.12
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• pp.323-336
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• 2021

The present study aims to examine the impact of real earnings management on the future value of the firm and its persistence. The study also tests suspect firm effects on the relationship between real earnings management and the future value of the firm. The sample of the present study consists of all listed non-financial firms from the year 2011 to 2018. Real earnings management has been measured in three alternative ways viz., abnormal operating cash flows, abnormal discretionary spending, and abnormal production cost. Tobin's Q is used as a measure of firm value. The interaction term of real earnings management and Tobin's Q is used to test firm value persistence. The results of the analysis disclose that out of three measures of real earnings management, abnormal reduction in discretionary spending only has a significant negative impact on the persistence of firm value. Moreover, the suspect firm analysis reveals that when the underlying motive of real earnings management is to meet zero earnings, both abnormal increases in operating cash flows and abnormal reduction in discretionary spending have a significant negative impact on firm value persistence.

• The Journal of Small Business Innovation
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• v.19 no.3
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• pp.43-55
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• 2016

This study examines the implications of special items (SI) for future earnings using quarterly Korean data over the period from 2011 to 2014. Due to the lack of identification of SI in Korea, I choose several items as special items if they are material and non-recurring items following prior studies. Then I regressed seasonally-differenced future earnings on positive and negative SI and found that their effects on future earnings were different. While negative SI are explained by inter-period expense transfer, positive SI are not well-described by traditional prototypes. Next, I regressed seasonally-differenced future earnings on negative SI sub-types as they are heterogeneous in nature and have differing implications for future earnings. While PPE impairments and intangibles impairments are partly explained by the inter-period expense transfer, unspecified loss of other loss items are not. Interestingly, these effects are attenuated or disappear in the Kosdaq market when the markets are divided into the Kospi and Kosdaq markets.

• Journal of Distribution Science
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• v.20 no.12
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• pp.117-123
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• 2022

Purpose: This study investigates the relationship between earnings forecasts estimated from a cross-sectional earnings forecast model and firm characteristics such as firm size, sales volatility, and earnings volatility. Research design, data and methodology: The association between earnings forecasts and the aforementioned firm characteristics is examined using 214 firm-year observations with analyst following and 848 firm-year observations without analyst following for the period of 2011-2019. I estimate future earnings using a cross-sectional earnings forecast model, and then compare these model-based earnings forecasts with analysts' earnings forecasts in terms of forecast bias and forecast accuracy. The earnings forecast bias and accuracy are regressed on firm size, sales volatility, and earnings volatility. Results: For a sample with analyst following, I find that the model-based earnings forecasts are more accurate as the firm size is larger, whereas the analysts' earnings forecasts are less biased and more accurate as the firm size is larger. However, for a sample without analyst following, I find that the model-based earnings forecasts are more pessimistic and less accurate as firms' past earnings are more volatile. Conclusions: Although model-based earnings forecasts are useful for evaluating firms without analyst following, their accuracy depends on the firms' earnings volatility.

• The Journal of Asian Finance, Economics and Business
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• v.6 no.4
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• pp.75-81
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• 2019

The paper aims to investigate the linkage among prior financial performance, organizational reputation and earnings quality. Firstly, it examines the influence of prior financial performance on organizational reputation and on earnings quality. Secondly, this research explores the moderating role that prior financial performance plays in the causal relationship from organizational reputation to earnings quality. Thirdly, the mediating role of organizational reputation in the effect of prior financial performance on earnings quality is analyzed. The empirical findings show that, prior financial performance positively affects both earnings quality and organizational reputation that in turn partly mediates the causal connection from prior financial performance to earnings quality; whereas prior financial performance imposes a positive moderation in the influence of organizational reputation on earnings quality. This research is expected to provide scholars and practitioners with a thorough understanding of the complex link among prior financial performance, organizational reputation and earnings quality. That helps them to deliver good decisions on the investment of suitable resources in maintaining and enhancing their organizational reputation, which assures a higher quality of reported earnings that in turn improves involved stakeholders' confidence in their firm. This likely leads the firms to gain better performance in the future.