The Vuolteenaho (2002) return decomposition is linear because it assumes that the market's return expectations are obtained solely from accounting information. By restricting accounting recognition rules to specific (and primarily) negative future cash flow shocks, conservative accounting drives...

This paper analyzes the relation between equity prices and conditional conservatism and introduces a new measure of conservatism at the firm-year level. We show that the asymmetric properties of conservative accounting, the existence of non-accounting sources of information, and the properties...

Using the Vuolteenaho (2002) variance decomposition methodology, this study assesses the relative value relevance of cash flow, accrual (earnings) and expected return news on SEC and preliminary earnings filing dates, as measured by their contribution to the volatility of unexpected returns....

This study investigates a large sample of financial statement restatements over the period 1986-2001, and compares restatements caused by changes in accounting principles to those caused by errors. Typically, investors perceive restatements as negative signals due to three potential reasons: (i)...

This paper investigates the relation between the extent of a firm's past and expected future losses or negative cash flows and the ex ante probability that it will manipulate revenues. When a firm has a string of losses or negative cash flows, traditional valuation models do not yield reliable...

This study evaluates the impact of earnings on firm credit risk as captured by Credit Default Swaps (CDS). We find that earnings (changes) are negatively correlated with one-year swap premia (changes) after controlling for equity returns but not with longer term premia (changes). We also find...

This paper extends the variance decomposition framework of Campbell (1991), Campbell and Ammer (1993) and Vuolteenhao (2002) to address the relative value relevance of accruals news, cash flow news and expected return news in driving firm-level equity returns. The extension is based on the...

We model the dynamic survival of earnings fixated investors in a competitive securities market that allows for learning and arbitrage and that is populated by heterogeneous investors. Our model is distinct from those based on aggressive trading by overconfident investors. We prove that in the...

This paper tests the Feltham-Ohlson (1995) model by transforming the undefined quot;other informationquot; variables into expectational variables, as suggested by Liu and Ohlson (2000). The signs of the estimated coefficients conform to the model's predictions using panel data techniques,...

This paper examines the importance of foreign earnings relative to domestic earnings for a sample of U.S. multinationals using variance decomposition. Our methodology represents an alternative and complementary approach over the prior literature, which is based on traditional regressions and...