Quality of earnings: A key factor in financial planning |
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Authors: | Joel G. Siegel Jae K. Shim |
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Affiliation: | Queens College of the City University of New York, USA |
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Abstract: | This paper presents the results of an empirical study based on the premise that, among companies with the same nominal earnings, those with higher quality of earnings will be more highly valued by investors. The price-earnings ratio should be higher for companies with better quality of earnings and lower for companies with poorer quality of earnings. The test is performed by estimating regression equations relating the price-earnings ratio to quality of earnings factors. The study should prove to be of significant value to financial decision-makers in formulating their long range plans. |
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