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Earnings quality measures and stock return volatility in South Africa

Author

Listed:
  • Nyanine Chuele Fonou-Dombeu

    (University of KwaZulu Natal)

  • Josue Mbonigaba

    (University of KwaZulu Natal)

  • Odunayo Magret Olarewaju

    (Conventry University)

  • Bomi Cyril Nomlala

    (University of KwaZulu Natal)

Abstract

This paper examined the association between various measures of earnings quality and stock return volatility of Johannesburg Stock Exchange (JSE)-listed companies for 10 years from 2009 to 2018. The measures of earnings quality considered were accrual quality, conservatism, earnings persistence, predictability and smoothness. The stock return volatility was measured with idiosyncratic volatility. Multilevel linear regression found that accrual quality and earnings persistence are negatively related to idiosyncratic volatility. Firms with a high value of accrual quality and those with more persistent earnings exhibited a decrease in stock return volatility. Furthermore, it was found that the earnings smoothness positively influenced the idiosyncratic volatility, suggesting that firms with less smooth earnings display an increase in stock return volatility. The conservatism and earnings predictability have no significant effect on stock return volatility. The mixed results of this study supported the noise and information perspective to explain the stock return volatility of JSE-listed companies.

Suggested Citation

  • Nyanine Chuele Fonou-Dombeu & Josue Mbonigaba & Odunayo Magret Olarewaju & Bomi Cyril Nomlala, 2022. "Earnings quality measures and stock return volatility in South Africa," Future Business Journal, Springer, vol. 8(1), pages 1-15, December.
    • Handle: RePEc:spr:futbus:v:8:y:2022:i:1:d:10.1186_s43093-022-00115-x
    DOI: 10.1186/s43093-022-00115-x
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    2. Mohammad Arashi & Mohammad Mahdi Rounaghi, 2022. "Analysis of market efficiency and fractal feature of NASDAQ stock exchange: Time series modeling and forecasting of stock index using ARMA-GARCH model," Future Business Journal, Springer, vol. 8(1), pages 1-12, December.
    3. Nyanine Chuele Fonou Dombeu & Bomi Cyril Nomlala, 2023. "Earnings Quality Research: Trend, Recent Evidence and Future Direction," International Review of Management and Marketing, Econjournals, vol. 13(5), pages 1-8, September.
    4. Titilope Esther Olorede & Segun Abogun & Johnson Kolawole Olowookere, 2022. "Executive Compensation, Corporate Governance and Financial Reporting Quality: Evidence from listed firms in Nigeria," Istanbul Management Journal, Istanbul University Business School, vol. 0(93), pages 1-19, December.

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    More about this item

    Keywords

    Earnings; Earnings quality; Risk; Idiosyncratic volatility; JSE-listed companies;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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