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Nonlinear earnings persistence

Author

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  • Cheng, Che-Hui
  • Wu, Po-Chin

Abstract

This study employs panel smooth transition regression (PSTR) models with different lagged variables of earnings components as regressor to evaluate earnings persistence effects. The models can resolve collinearity problems between predictors, reflect firms' volatile or irregular earnings streams that are likely derived from long-run investments, and provide more useful information for improving forecasting performance. Most importantly, they can describe differential earnings persistence effects between different regimes that have not been verified by previous studies. Our empirical results support these arguments.

Suggested Citation

  • Cheng, Che-Hui & Wu, Po-Chin, 2013. "Nonlinear earnings persistence," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 156-168.
    • Handle: RePEc:eee:reveco:v:25:y:2013:i:c:p:156-168
    DOI: 10.1016/j.iref.2012.07.003
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    2. Po-Chin Wu & Chia-Jui Chang, 2017. "Nonlinear impacts of debt ratio and term spread on inward FDI performance persistence," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(3), pages 369-388, December.
    3. Wu, Po-Chin & Liu, Shiao-Yen & Pan, Sheng-Chieh, 2013. "Nonlinear bilateral trade balance-fundamentals nexus: A panel smooth transition regression approach," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 318-329.
    4. Andres Gonzalez & Timo Terasvirta & Dick van Dijk, 2005. "Panel Smooth Transition Regression Models," Research Paper Series 165, Quantitative Finance Research Centre, University of Technology, Sydney.
    5. Thanh, Su Dinh & Canh, Nguyen Phuc & Ha, Nguyen Tran Thai, 2020. "Debt structure and earnings management: A non-linear analysis from an emerging economy," Finance Research Letters, Elsevier, vol. 35(C).
    6. Po-Chin Wu & Hsiao & I-Chung & Tsai & Meng-Hua, 2018. "Nonlinear Effect of Business Cycle on Lottery Sales Stability," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 8(4), pages 1-3.
    7. Wu, Po-Chin & Liu, Shiao-Yen & Zhai, Rui-Xiang, 2018. "Nonlinear impacts of operating risk and demand management policy on banks’ performance: The role of leading indicator," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 40-53.
    8. Li, Wenying & Dorfman, Jeffrey H., 2019. "The implications of heterogeneous habit in consumer beverage purchases on soda and sin taxes," Food Policy, Elsevier, vol. 84(C), pages 111-120.
    9. Po-Chin Wu & Shiao-Yen Liu & Kou-Bau Wang, 2017. "Does Unemployment Matter for Lottery Sales and their Persistence? A New Estimation Approach," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 130(2), pages 581-592, January.
    10. Po-Chin Wu & Shiao-Yen Liu & Sheng-Chieh Pan, 2014. "Does Misery Index Matter for the Persistence of Health Spending? Evidence from OECD Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 118(2), pages 893-910, September.
    11. Po-Chin Wu & Sheng-Chieh Pan & Xue-Ling Tai, 2015. "Non-linearity, persistence and spillover effects in stock returns: the role of the volatility index," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 597-613, August.
    12. Wu, Po-Chin & Liu, Shiao-Yen & Chen, Che-Ying, 2016. "Re-examining risk premiums in the Fama–French model: The role of investor sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 154-171.

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    More about this item

    Keywords

    Earnings persistence effect; Panel smooth transition regression model; Regime switching; Lagged cash flows; Lagged (un)systematic earnings;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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