Persistence and current determinants of the future earnings growth rates of firms
Consistent with economic intuition, short- and long-term growth rates of both accrual earnings (AE) and cash flows (CF) exhibit mean-reversion at the firm level that is stronger when their base-year counterpart is negative. Firm attributes such as size, firm's age, earnings volatility, and past returns exhibit predictive power for growth rates for individual firms. Short- and long-term IBES earnings growth rate forecasts, when orthogonalized with respect to contemporaneous and past actual earnings growth rates, exhibit predictive power for, respectively, short- and long-term AE (but not CF) growth rates for both positive and negative base-year growth rates.
|Keywords||cash flows, earnings, growth rates, mean-reversion, persistence, valuation|
|Journal||European Journal of Finance|
Kryzanowski, L. (Lawrence), & Mohsni, S. (2014). Persistence and current determinants of the future earnings growth rates of firms. European Journal of Finance, 20(2), 181–200. doi:10.1080/1351847X.2013.769891