Earnings Persistence And Stock Returns After Earnings Announcements

As the continuously deepening of market reform in China, securities market is advancing in the direction of standardization and institutionalization. For investors,whether the operating condition of one firm is good or bad, depending on its accounting earnings. However, managers may carry out earnings management by means of many measures so that one firm with poor performance appears to have a good prospect. As a result, it will be extremely difficult for investors to make reasonable decisions. Hence, not only do more and more investors pay attention to the earnings of listed companies, but also they attach importance to the earnings quality of those ones. Earnings persistence, taken as one main factor measuring the earnings quality, this paper argues that it is valuable to be explored. Besides,many scholars at home and abroad discovers the phenomenon of Post-Earnings-Announcement-Drift (PEAD): abnormal return of good-news firms will continue to go upwards in a period of time after the earnings announcement date; while abnormal return of bad-news firms will continue to go downwards in a period of time after the earnings announcement date. How good news or bad news has an impact on the investors'stock return? Whether this is related to earnings persistence of companies? This paper selects A-shares from Shanghai Stock Exchange as sample data, and makes a research on the relation between earnings persistence and stock return after earningannouncement date through the fixed effect multiple regression models. Consequently, this paper finds that there exists a positive correlation between earning persistence and stock return after earning announcement date. Or rather, when earnings persistence is higher, the stock return will be bigger; when earnings persistence is lower, the stock return will be smaller correspondingly.