Finance Perspective versus Accounting Perspective: The Case of Earnings Persistence in Indonesia

Abstract

This study aims at comparing accounting and finance perspective to predict earnings persistence. Accounting perspective predicts that current earning components affect the future earnings, while finance perspective predicts that current dividends affect the future earnings. The results show that component of earnings more persistence rather than total earning, and persistence of earnings are also showed by changes of dividend. The results of this study that changes in dividend policy have information contents about future earnings. Increase in dividend payment show that firm believe that firm have better prospect in the future thus able to achieve better future performance. This result confirm prospect theory. This research also find manager use dividend policy to convey relevant information to investor. Managers believe that firms have good opportunity in the future and achieve higher performance. In this case, managers pays higher dividend to give signal to investor that firm will achieve better performance. Firms using dividend policy to give signal to investor to convey relevant information. This result confirm dividend signalling theory. The results also confirm agency theory studying the relationship between management (agent) and shareholder (principal) and assuming the more unite the shareholder, the more powerful shareholders' position rather management's position. The principal interested to both earnings distribution and increasing in future earnings, whereas management prefer increasing permanent earnings with increasing investment on prospective project rather than dividing dividend. The findings of the study show that increase in current earnings and dividend indicates increase in future earnings and dividends. The results of the study show that accrual-cash flow perspective better indicating quality of earnings than dividend signaling perspective.

The Impact of Real Earnings Quality on the Future Market Value by Moderated by the Dividend Policy

“…This research proves that dividend policy is an asymmetrical pattern of information through the feedback of interaction patterns. The results of this test strengthen (Deshmukh, 2005) and (Bandi, 2012) on the role of dividends to reduce the level of agency conflict (conflict of interest). Investors can distinguish companies that use low and high accruals because attention is not only focused on achieving profits but the level of business continuity.…”

“…This dividend policy encourages management to reduce the pattern of abnormal activity, so that it could increase the real earnings quality, the ability to predict the company's earnings in the further period, as well as the main test model. the dividend policy would be able to contribute to estimating the future prospects and it also strengthening (Bandi, 2012) and (Ratnadi et al, 2013) research regarding the role of dividends as a communication channel.…”

Earnings persistence of Nigerian listed banks

“…From the forgoing, it is clear that the empirical evidence on earnings persistence and predictability is mixed and inconclusive. While some studies reported a positive association between future year earnings and the current year earnings, and consequently stock price (Giner &Riverte, 2003;Tonks, 2007;Bandi, 2012;Pimentel & De Aguiar, 2016;Moienadin &Tabatabaenasab, 2014;Kothari, Lewellen & Warner, 2006;Oluoch &Gichaiya 2015;Folsom, Hribar, Mergenthaler, & Peterson 2016); others reported a negative association (Bearver, Lamber &Morse, 1980;Giner, &Riverte, 2003;Dichev &Tang, 2008).…”