Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe
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2018
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Abstract
This paper investigates the impact of negative earnings persistence on
the value relevance of earnings before interest and taxes (EBIT) and book values for
27 non-financial firms listed on the Zimbabwe Stock Exchange (ZSE). Negative
earnings are perceived to be persistent where firms reported losses in at least 25%
of the time over the eight-year study period. Two-step System GMM was used, with
the average debt-equity ratio and net asset value per share being additional
regression instruments. The regressions were primarily done on the ZSE full sample,
and then on a profit-reporting firms’ sample. The loss-reporting firms’ sample was
too small for meaningful regressions. It was found that when loss-firms were
removed from the sample, value relevance of EBIT and book value declined. This
means that investors are very meticulous with firms they perceive to be persistent
loss-makers but tend to be complacent with profit-firms.
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Sixpence, A. and Adeyeye, O.P., 2018. Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe. Cogent Economics & Finance, 6(1), p.1559711.