Earnings Quality and Book-to-Market in the Cross Section of Expected Returns

Vasiliki Athanasakou, George Athanassakos

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The purpose of this paper is to examine whether earnings quality contributes to the book-to- market’s predictive power in the cross section of stock returns. Earnings quality is embedded in the value-growth effect given that retained earnings is a key part of the book value of equity. Earnings quality reflects the effects of managerial discretion on reported earnings, which has been shown to be associated with both risk and behavioral biases in asset pricing. Our results affirm the existence of a value premium and show that the value premium is more pronounced within poor earnings quality stocks. Moreover, we find that poor earnings quality contributes to the value premium mainly through the pricing of growth stocks. Our results suggest that the quality of reported earnings has an incremental role in shaping expected returns of value versus growth stocks.
Original languageEnglish
Peer-reviewed scientific journalMultinational Finance Journal
Volume23
Issue number3-4
Pages (from-to)169-210
ISSN1096-1879
Publication statusPublished - 21.11.2019
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • value premium
  • earnings quality
  • earnings management
  • asset pricing

Fingerprint Dive into the research topics of 'Earnings Quality and Book-to-Market in the Cross Section of Expected Returns'. Together they form a unique fingerprint.

Cite this