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DuPont Analysis, Earnings Persistence, and Return on Equity: Evidence from Mandatory IFRS Adoption in Canada

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  • Yan Jin

Abstract

This paper proposes four new models to forecast one‐year‐ahead return on equity (ROE) and change in ROE based on prior research in the DuPont analysis and earnings persistence, and also examines whether the persistence of ROE has improved upon mandatory IFRS adoption in Canada. Using the Granger causality test to establish the usefulness of additional explanatory variables in forecasting future earnings, I show that the DuPont components are useful in predicting one‐year‐ahead ROE, and that the persistence of ROE has decreased since Canadian firms adopted IFRS in 2011. This paper contributes to accounting research in two ways. First, it introduces a new approach to forecasting one‐year‐ahead ROE. Second, it sheds some light on the impact of IFRS adoption on reporting quality in Canada. Analyse de DuPont, persistance des résultats et rendement des capitaux propres : incidence de l'adoption obligatoire des IFRS au Canada Résumé L'auteure propose quatre nouveaux modèles de prévision, un an à l'avance, du rendement des capitaux propres (RCP) et de la variation du RCP, à partir des travaux précédents portant sur l'analyse de DuPont et la persistance des résultats. Elle se demande également si la persistance du RCP s'est améliorée depuis l'adoption obligatoire des IFRS au Canada. En utilisant le test de causalité de Granger pour établir l'utilité de variables explicatives supplémentaires dans la prévision des résultats à venir, l'auteure constate que les composants de DuPont sont utiles à la prévision du RCP un an à l'avance et que la persistance du RCP a diminué depuis que les sociétés canadiennes ont adopté les IFRS en 2011. L’étude contribue à la recherche en comptabilité de deux façons. En premier lieu, elle présente une nouvelle méthode de prévision du RCP un an à l'avance. En second lieu, elle jette un peu plus de lumière sur l'incidence de l'adoption des IFRS sur la qualité de l'information au Canada.

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  • Yan Jin, 2017. "DuPont Analysis, Earnings Persistence, and Return on Equity: Evidence from Mandatory IFRS Adoption in Canada," Accounting Perspectives, John Wiley & Sons, vol. 16(3), pages 205-235, September.
    • Handle: RePEc:wly:accper:v:16:y:2017:i:3:p:205-235
    DOI: 10.1111/1911-3838.12142
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    2. Luis Manuel Tovar Rocha & Julio Téllez Pérez & Gabriel Alberto Agudelo Torres, 2022. "The Relationship Between Share Prices and DUPONT Model Components: Evidence from Mexican Stock Market," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 17(1), pages 1-13, Enero - M.
    3. Nung Hong Do & Nha Van Tue Pham, 2020. "The Influence of Sustainable Earnings on Stock Price: Evidence from Publicly Listed Vietnamese Business Enterprises," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 16(2), pages 101-121.
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    6. Giuseppe Bonazzi & Paolo Camanzi & Giovanni Ferri & Elisa Manghi & Mattia Iotti, 2021. "Economic Sustainability of Pig Slaughtering Firms in the Production Chain of Denomination of Origin Hams in Italy," Sustainability, MDPI, vol. 13(14), pages 1-18, July.

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