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The effect of SFAS No. 52 on the security analysts' perception of the predictive usefulness of reported earnings
Abstract
SFAS No. 52 is believed to have reduced the noise embedded in earnings reported under SFAS No. 8. As the noise level is reduced, the usefulness of current reported earnings in predicting future earnings level is expected to increase. This study tested the effect of the SFAS No. 52 on security analysts' perception of the predictive usefulness of reported earnings. The change in security analysts' perception was measured by comparing the Earnings Forecast Revision Coefficient (EFRC) obtained during the SFAS No. 8 period to that obtained during the SFAS No. 52 period. Treatment firms (39) were chosen based on the expectation that they would be affected by SFAS No. 52 while the control firms (39) were not expected to be affected by SFAS No. 52. Financial data were collected from the COMPUSTAT annual and quarterly tapes and stock return data from the CRSP daily return tape. Security analysts' forecast data were collected from the Value Line Investment Survey. The testable model adopted in this study is a regression model with continuous and dummy variables. The dependent variable is security analysts' one-quarter-ahead earnings forecast revisions and the independent variables are the forecast error and dummy variables used to classify a total of 2070 observations into four groups: the treatment firms under the SFAS No. 52 and No. 8 and the control firms under the SFAS No. 52 and No. 8. The test results indicated that, in the case of the treatment firms, the security analysts' perception of the predictive usefulness of reported earnings improved significantly, while, in the case of the control firms, the security analysts' perception of the predictive usefulness of reported earnings did not change significantly. Therefore, this study provided evidence that SFAS No. 52 increased security analysts' perception of the predictive usefulness of earnings.
Subject Area
Accounting
Recommended Citation
Kim, Jeongkuk, "The effect of SFAS No. 52 on the security analysts' perception of the predictive usefulness of reported earnings" (1991). ETD collection for University of Nebraska-Lincoln. AAI9133294.
https://digitalcommons.unl.edu/dissertations/AAI9133294