On the pricing of the persistence of earnings components in China

Xuan Wu, Gaoliang Tian, Yueting Li, Qing Zhou

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We examine the market pricing of the persistence of earnings components in the Chinese stock market. We find that the market on average misprices the persistence of total earnings. By decomposing total earnings into components, we find that while the market shows no evident mispricing of the persistence of the industry-wide earnings component, it does misprice the persistence of firm-specific earnings, in particular, firm-specific cash flows. Moreover, the mispricing of firm-specific earnings is more pronounced in the sample of firms with low firm-level disclosure quality. Our findings indicate that “investor fixation” is not a primary driver of the mispricing of the persistence of earnings components in China; instead, this mispricing is largely driven by the disclosure quality difference between earnings components.

LanguageEnglish
Pages112-132
Number of pages21
JournalPacific Basin Finance Journal
Volume53
DOIs
Publication statusPublished - Feb 2019

Fingerprint

Earnings components
China
Pricing
Persistence
Mispricing
Disclosure quality
Cash flow
Investors
Industry
Chinese stock market

Keywords

  • Accruals
  • Cash flows
  • Disclosure quality
  • Earnings
  • Mispricing
  • MANAGEMENT
  • INDUSTRY
  • INFORMATION
  • MARKETS
  • ACCRUALS
  • ASSET PRICES
  • CASH FLOWS
  • EQUILIBRIUM
  • INVESTORS SUSCEPTIBILITY
  • AUDIT-QUALITY

Cite this

Wu, Xuan ; Tian, Gaoliang ; Li, Yueting ; Zhou, Qing. / On the pricing of the persistence of earnings components in China. In: Pacific Basin Finance Journal. 2019 ; Vol. 53. pp. 112-132.
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On the pricing of the persistence of earnings components in China. / Wu, Xuan; Tian, Gaoliang; Li, Yueting; Zhou, Qing.

In: Pacific Basin Finance Journal, Vol. 53, 02.2019, p. 112-132.

Research output: Contribution to journalArticleResearchpeer-review

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