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Stock Prices and Earnings: A History of Research

Author

Listed:
  • Patricia M. Dechow
  • Richard G. Sloan
  • Jenny Zha

    (Haas School of Business, University of California, Berkeley, California 94720)

Abstract

Accounting earnings summarize periodic corporate financial performance and are key determinants of stock prices. We review research on the usefulness of accounting earnings, including research on the link between accounting earnings and firm value and research on the usefulness of accounting earnings relative to other accounting and nonaccounting information. We also review research on the features of accounting earnings that make them useful to investors, including the accrual accounting process, fair value accounting, and the conservatism convention. We finish by summarizing research that identifies situations in which investors appear to misinterpret earnings and other accounting information, leading to security mispricing.

Suggested Citation

  • Patricia M. Dechow & Richard G. Sloan & Jenny Zha, 2014. "Stock Prices and Earnings: A History of Research," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 343-363, December.
    • Handle: RePEc:anr:refeco:v:6:y:2014:p:343-363
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-110613-034522
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    Citations

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    Cited by:

    1. Prodosh Simlai, 2021. "Accrual mispricing, value-at-risk, and expected stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1487-1517, November.
    2. Zabihollah Rezaee & Ling Tuo, 2019. "Are the Quantity and Quality of Sustainability Disclosures Associated with the Innate and Discretionary Earnings Quality?," Journal of Business Ethics, Springer, vol. 155(3), pages 763-786, March.
    3. Bai, Jennie & Philippon, Thomas & Savov, Alexi, 2016. "Have financial markets become more informative?," Journal of Financial Economics, Elsevier, vol. 122(3), pages 625-654.
    4. Marek Sojka, 2021. "PEAD na polskim rynku akcji," Bank i Kredyt, Narodowy Bank Polski, vol. 52(2), pages 143-166.
    5. Nurul Hidayah & Wahyudin Zarkasyi, 2017. "The Effect of Human Resources Management Competency and the Role of Culture on Accrual Accounting Implementation Effectiveness and the Impact on Quality of Accounting Information," European Research Studies Journal, European Research Studies Journal, vol. 0(4B), pages 183-199.
    6. Rezaee, Zabihollah & Dou, Huan & Zhang, Huili, 2020. "Corporate social responsibility and earnings quality: Evidence from China," Global Finance Journal, Elsevier, vol. 45(C).
    7. Jarva, Henry & Kallunki, Juha-Pekka & Livne, Gilad, 2019. "Earnings performance measures and CEO turnover: Street versus GAAP earnings," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 249-266.
    8. G.P. Kourtis & L.P. Κourtis & M.P. Kourtis & P. Curtis, 2017. "Fundamental Analysis, Stock Returns and High B/M Companies," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 3-18.
    9. Figlioli, Bruno & Lemes, Sirlei & Lima, Fabiano Guasti, 2020. "In search for good news: The relationship between accounting information, bounded rationality and hard-to-value stocks," Emerging Markets Review, Elsevier, vol. 44(C).
    10. K. J. Huang, 2022. "DeepValue: A Comparable Framework for Value-Based Strategy by Machine Learning," Computational Economics, Springer;Society for Computational Economics, vol. 60(1), pages 325-346, June.
    11. Pudji Astuty, 2017. "The Influence of Fundamental Factors and Systematic Risk to Stock Prices on Companies Listed in the Indonesian Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(4A), pages 230-240.
    12. repec:ers:journl:v:v:y:2017:i:4:p:3-18 is not listed on IDEAS
    13. Ivashchenko, Alexey, 2024. "Corporate bond price reversals," Journal of Financial Markets, Elsevier, vol. 68(C).
    14. S. P. Kothari & Charles Wasley, 2019. "Commemorating the 50‐Year Anniversary of Ball and Brown (1968): The Evolution of Capital Market Research over the Past 50 Years," Journal of Accounting Research, Wiley Blackwell, vol. 57(5), pages 1117-1159, December.

    More about this item

    Keywords

    earnings; stock prices; accruals; conservatism; fair value; anomalies;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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