Earnings persistence, residual income valuation and managerial myopia

• Grant number: 13/12436-8
• Support Opportunities: Scholarships abroad - Research
• Effective date (Start): February 03, 2014
• Effective date (End): February 02, 2015
• Field of knowledge: Applied Social Sciences - Administration - Accounting
• Principal Investigator: Renê Coppe Pimentel
• Grantee: Renê Coppe Pimentel
• Host Investigator: Thomas Plenborg
• Host Institution: Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras (FIPECAFI). São Paulo , SP, Brazil
• Research place: Copenhagen Business School (CBS), Denmark

Abstract

More persistent earnings tend to yield better inputs to equity valuation models. Despite that, only a few studies in the international literature, and none in the Brazilian literature, have directly tested this hypothesis, especially when associated with the IFRS adoption. Specifically, no study has investigated the role of time-varying earnings persistence (TVP) on the firm valuation. In addition, no study has investigated the role of TVP as a measure of managerial time orientation, towards the identification of managerial myopia, namely the short-termism, in which managers overweight near-term earnings in comparison to creating long-run value. Thus, the aim of this research is to analyze, in an integrated way, three elements of interest to the accounting and finance literature: the role of earnings persistence, residual income valuation and managerial myopia. For such, accounting earnings' quality models (particularly, the earnings persistence), residual income valuation models and managerial myopia models will be developed and empirically analyzed, under the IFRS framework, for a set of Brazilian listed firms. (AU)