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| Author: | Alwathainani, A.M. |
| Title: | Consistency of firms' past financial performance measures and future returns |
| Journal: | British Accounting Review
2009 : SEP, VOL. 41:3, p. 184-196 |
| Index terms: | financial performance measurement stock returns investors behavioural science models |
| Freeterms: | growth consistency |
| Language: | eng |
| Abstract: | This study shows that growth consistency in firms' past financial performance measures (henceforth as: p-f-p-m.) is useful in predicting future stock returns. Firms consistently ranking in the lowest 30 percent of p-f-p-m. have greater rates of returns relative to their inconsistent low-growth firm counterparts. The return differential between these two groups increases uniformly with the length of estimation intervals of past performance data. Firms consistently ranking in the top 30 percent of growth rates earn slightly lower returns than inconsistent high-growth firms. Based on the findings, investors are indicated to overreact to consistency in financial metrics. This overreaction is, however, more pronounced and persistent for consistent low-growth firms than that for consistent high-performing firms. |
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