Research Details

Abstract

This paper analyzes the ability of earnings and non-earnings performance metrics to explain the variability in annual stock returns for industries where we identify, ex ante, an allegedly preferred (for valuation purposes) summary performance metric. We identify three industries each where earnings before interest, taxes, depreciation and amortization (EBITDA) and cash from operations (CFO) are preferred, and three industries where specific non-GAAP performance metrics are preferred. As a benchmark, we also examine the ability of EBITDA and CFO to explain returns for seven industries for which earnings is the preferred metric. Results for the benchmark earnings industries show that earnings dominates EBITDA and CFO in explaining returns. All other results are inconsistent with the view that perceptions of preferred metrics are reflected in actual aggregate investment behaviors.

Type

Article

Author(s)

Jennifer Francis, Katherine Schipper, Linda Vincent

Date Published

2003

Citations

Francis, Jennifer, Katherine Schipper, and Linda Vincent. 2003. The Relative and Incremental Information Content of Alternative (to Earnings) Performance Measures. Contemporary Accounting Research.(1): 121-164.