Title: The effect of earning persistence and components of earning on the predictability of earning: evidence from an emerging market

Authors: Ahmed Abousamak

Addresses: College of Business, Al Ain University of Science and Technology, P.O. Box 64141, Al Ain, UAE; Faculty of Commerce, Suez Canal University, Egypt

Abstract: This study investigates the relationship between persistence of earning and the components of earning on the predictability of earning in an emerging market after the adoption of International Financial Reporting Standards (IFRS). The sample firms consist of 143 nonfinancial firms listed on the Egyptian stock exchange during the period 2008-2015. The current study uses three models to investigate the phenomenon. The study confirms the persistence of earning for the sample firms. However, the accrual component has more persistence than the cash flow component. The results imply that the persistence of accrual is affected by their faithful representation as less faithful representational accrual components have lower persistence than more faithful representational accrual components. Most prior studies have tested the phenomenon in developed markets. The paper extends the literature that addresses the second fundamental quality of qualitative characteristics of accounting information (i.e., faithful representation and its effect on accounting numbers).

Keywords: earning persistence; cash flow; accrual; working capital accrual; non-current operating accrual; financial accrual; emerging market; Egypt.

DOI: 10.1504/IJEBR.2018.094375

International Journal of Economics and Business Research, 2018 Vol.16 No.3, pp.405 - 420

Received: 25 May 2017
Accepted: 30 Jul 2017
Published online: 31 Aug 2018 *

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