Abstract:
This paper investigates the existence of systematic differences in persistence across
components of earnings. If components of earnings experience differences in persistence, this
may provide insights into the determinants of aggregate earnings level and persistence. This
paper provides evidence of differences in persistence across earnings components, including
earnings decomposed on the basis of cash / accruals, operating / financing / other and
financial ratios components consistent with the literature. Furthermore, there is limited
evidence of earnings components improving the explanatory power of models evaluating
aggregate earnings persistence. Due to the pivotal role of earnings in firm valuation, the
results from this paper have direct implications for valuation literature.
