Business, Management and Accounting
8 years ago

Financial statements reveal changing earnings trends, impacting stock prices significantly.

Financial Statement Information and the Pricing of Earnings Changes
Stephen H. Penman

Paper Summary

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The article explores how changes in a company's earnings affect its stock price. It finds that the persistence of earnings, or how consistent they are over time, influences stock price changes. The study shows that the information in financial statements can help investors understand the impact of earnings changes on stock prices. Additionally, the study reveals that earnings persistence can change over time and tends to revert to the average for all companies. Lastly, the study suggests that the multiplier of earnings changes is also influenced by information from the previous year's financial statements.