Business, Management and Accounting
8 years ago

French stocks' value tied more to earnings changes than levels.

European Accounting Review
Accounting earnings and firm valuation: the French case
Pascal Dumontier, Réal Labelle

Paper Summary

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The study looked at how stock returns are related to changes in earnings for French companies between 1981 and 1990. They found that stock returns are more connected to changes in earnings than to the actual earnings levels. French accounting principles are just as useful for valuing firms as US or UK standards. By looking at data over time, the researchers found that accounting measurement and valuation principles, as well as delays in recognizing important events, are the main reasons why earnings and stock returns are not closely linked in short-term studies.