Determinants of The Stock Price Response to Earnings

Kallapur, S (1990) Determinants of The Stock Price Response to Earnings. PhD thesis, Harvard University.

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Abstract

Several recent studies such as Kormendi and Lipe (1987) and Collins and Kothari (1989) have sought to answer the questions how and why earnings relate to stock prices. The study described in part I of this dissertation seeks to extend that literature by explicitly taking into account the linkages between current earnings, dividends, and future earnings. The model developed in this study shows that Jensen''s free cash flow theory--that earnings retentions are invested in projects earning a low rate of return--implies two consequences: one, stock returns depend on earnings as well as dividends surprises, and two, earnings response coefficients (ERCs) are positively related to payout ratios. Thus a positive association between ERCs and payout ratios may be used to infer a low return on earnings retentions. The model also predicts, like previous studies, that ERCs are positively related to earnings persistence and negatively to earnings riskiness.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Kallapur, Shttps://orcid.org/0000-0003-2920-6144
Item Type: Thesis (PhD)
Additional Information: The thesis was published by the author with the affiliation of Harvard University.
Uncontrolled Keywords: STOCK PRICE, ERCs
Subjects: Business and Management
Depositing User: Veeramani R
Date Deposited: 12 Apr 2019 07:20
Last Modified: 12 Apr 2019 07:27
URI: http://eprints.exchange.isb.edu/id/eprint/800
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