Issue Details
ANALYSIS OF EARNINGS CYCLES AND THE PRICING OF SECURITIES
Himanshu Rajput, Dr. Dalip Sharma
Page No. : 7-11
ABSTRACT
The substantial impact of accounting profit disclosures on firms’ security prices has been amply demonstrated by accounting studies conducted since the late 1960s (Lev, 1989). Although the impact may differ depending on the circumstances, earnings seem to have an impact on share prices. However, there has been an emphasis on the incremental value-relevance of cash flows and the effects of managerial discretion (i.e., discretionary accruals) on the pricing of earnings due to the persistent criticism leveled at earnings because of their historical cost emphasis or because they might be subject to earnings management (Riahi-Belkaoui, 2000). The evidence of discretionary accruals’ pricing, which demonstrates that these accruals are nonetheless determined by the market despite being opportunistic and value-irrelevant, is an intriguing discovery. The majority of return-earnings regression studies have limited their analysis to the market pricing of an entire earnings cycle, or a series of events with an impact of earnings power that is past. This includes the informativeness of earnings as well as the informativeness of its components (cash flows, discretionary accruals, and nondiscretionary accruals) (AICPA, 1973). This complies with the Trueblood Report’s aim No. 8, which reads as follows: "An objective [of financial statements] is to give
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