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Predicting Earnings Growth Using E/P Ratios: Australian Evidence

Author

Listed:
  • Dave E. Allen

    (School of Finance and Business Economics, Edith Cowan University, Joondalup Campus, Joondalup Drive, Joondalup WA 6027, E†mail: d.allen@cowan.edu.au)

  • Henrietta Lisnawati

    (P.T. Osaka Indah, Jl. Jembatan Tiga No 36 AA, Jakarta †Utara, Indonesia)

  • Martyn Clissold

    (Norwich Union, PO Box 4, Surrey Street, Norwich, Norfolk NR1 3NG, England)

Abstract

The classic ‘higgledy†piggledy growth’ studies by Little (1962), Rayner and Little (1966), Brealey (1967), and Lintner and Glauber (1967) essentially reported that earnings changes over time appear to be randomly distributed. More recently Fuller, Huberts and Levinson (1992) have undertaken a US study which challenges some of these earlier findings. Their study utilised the earnings†to†price ratio as the market's implicit forecast of future earnings changes. Their results suggested that high E/P stocks tend to have relatively lower earnings changes whilst low E/P stocks tend to have higher earnings changes. This study reworks Fuller, Huberts and Levinson's study on a sample of 207 listed Australian companies for the period 1972–1984. On balance, our results support their findings.

Suggested Citation

  • Dave E. Allen & Henrietta Lisnawati & Martyn Clissold, 1998. "Predicting Earnings Growth Using E/P Ratios: Australian Evidence," Australian Journal of Management, Australian School of Business, vol. 23(1), pages 115-127, June.
    • Handle: RePEc:sae:ausman:v:23:y:1998:i:1:p:115-127
    DOI: 10.1177/031289629802300107
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    References listed on IDEAS

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    Cited by:

    1. Anthony Flint & Andrew Tan & Gary Tian, 2010. "Predicting Future Earnings Growth: A Test Of The Dividend Payout Ratio In The Australian Market," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(2), pages 43-58.
    2. Shamsuddin, Abul F. M. & Hillier, John R., 2004. "Fundamental determinants of the Australian price-earnings multiple," Pacific-Basin Finance Journal, Elsevier, vol. 12(5), pages 565-576, November.

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    Keywords

    E/P RATIOS; FORECASTING EARNINGS CHANGES;

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