The information content of earnings components : evidence from the Chinese stock market
Document Type
Journal article
Source Publication
European Accounting Review
Publication Date
1-1-2011
Volume
20
Issue
4
First Page
669
Last Page
692
Publisher
Routledge
Abstract
China's listed firms report substantial non-operating revenues and expenses. We argue that these non-core earnings should have different properties and different valuation implications than operating or core earnings. Furthermore, the different types of firm ownership may have differential impacts on the information content of earnings components. Based on data from 1996 to 2008, we find that core earnings are more persistent than non-core earnings. Because of this, core earnings have a greater association with contemporaneous stock returns. However, the stock market does not fully incorporate all the information in earnings; we find that core earnings are undervalued and non-core earnings are overvalued. This effect is much reduced for privately controlled listed firms. We develop an investment trading strategy to exploit these market inefficiencies.
DOI
10.1080/09638180.2011.599929
Print ISSN
09638180
E-ISSN
14684497
Publisher Statement
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Chen, G., Firth, M., & Gao, D. N. (2011). The information content of earnings components: Evidence from the Chinese stock market. European Accounting Review, 20(4), 669-692. doi: 10.1080/09638180.2011.599929