In this thesis I investigate whether two clear and simple indicators, dividends and franking credits, provide users with useful information to assess earnings persistence. Persistence is an important attribute of earnings (Dechow and Schrand 2004). I argue and show earnings persistence is a function of firm life-cycle. Firms can generally be divided into three life stages: establishing profitability, sustainable profitability and declining profitability. Using a simple one-period persistence model I demonstrate that dividends and higher franking credits identify firms in the different stages of the life-cycle. Dividends provide an inherent signal of firms that are in the mature phase of the life-cycle, and hence provide information about earnings persistence. I show firms that pay dividends have persistent profits and losses that reverse. However dividend paying firms are not homogenous. Firms that pay franked dividends have significantly more persistent earnings than firms that pay unfranked dividends. Consistent with higher franking credits identifying more mature firms, fully franked dividend paying firms have significantly less persistent losses than partially franked dividend paying firms. Importantly, my primary results provide an alternative explanation to Hanlon (2005) and add to our understanding of the accrual anomaly. Both Hanlon and my study investigate the informativeness of tax on earnings persistence. I demonstrate that firms that have large differences between the level of franking and accounting income (i.e., pay unfranked dividends while reporting a profit) have large book-tax differences. Such differences in tax and accounting income are a function of the firm life-cycle. Large book-tax differences are not necessarily the result of opportunism (or earnings management). Thus firms with large book-tax differences are typically establishing profitability or entering the declining phase. These firms have less persistence profits, accruals and cash flows than firms with small book-tax differences. I conclude the accrual anomaly is a function of inherent firm characteristics associated with different phases of the life-cycle rather than being a function of earnings management.

This study resolves divergent prior findings relating book-tax differences to future earnings, determines whether prior literature has missed relationships between different types of book-tax differences and pre-tax and/or after-tax income, and investigates prior earnings as a factor contributing to the observed relationships. As past research has found that some firms have large book-tax differences over several years, this study separates these firms with large stable book-tax differences from others with large book-tax differences (non-stable) when investigating the link between large book-tax differences and future earnings. Finally, this study investigates whether the relationship between book-tax differences and future earnings reflects information about prior earnings and finds that prior earnings growth explains much of the lower persistence found for firms with large book-tax differences.

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This paper investigates the determinants of intra-year error in annual effective tax rate estimates, relative to the actual annual effective tax rate (“ETR Miss”) and examines whether ETR Miss contains value relevant information. I find that ETR Miss is affected by both unbiased estimation errors related to the predictability of business fundamentals and biased estimation related to varying managerial incentives within the year. Firms with higher ETR Miss exhibit less persistent pre-tax earnings and earnings components, consistent with ETR Miss containing information on earnings quality. Finally, for firms with higher ETR Miss, investors place a lower weight on accounting earnings, consistent with the market incorporating information in ETR Miss for valuation assessments.

abstract: Existing literature consistently documents a relationship between book-tax differences and future financial performance. Specifically, large book-tax differences are associated with lower earnings persistence. I contend that one reason the tax information contained in financial statements is informative about future earnings is that the relationship between book income and taxable income captures information about a firm's life cycle stage. Using a life cycle measure from the literature, I use fundamental analysis to group firm-year observations into life cycle stages and document a link between book-tax differences and firm life cycle. I build on prior studies that find a relation between earnings persistence and book-tax differences, and earnings persistence and firm life cycle. I find that after controlling for firm life cycle stage, the association between large positive book-tax differences and lower earnings persistence does not hold. My results offer an economic theory based explanation for the relation between book-tax differences and earnings persistence as an alternative explanation to findings in prior research. / Dissertation/Thesis / Ph.D. Accountancy 2012

This paper investigates the potential procyclical effects of fair value accounting (FVA). If FVA adjustments result in increased accounting profits with the recognition of transitory gains through a firm's profit and loss (P&L), and if management incorrectly assesses the persistence of the unrealised gains, these increased profits may be paid out as dividends. This has the potential to increase leverage and risk for these firms, thereby also possibly amplifying economic cycles. A study by Goncharov and Van Triest (2011:59) on Russian firms found that FVA adjustments are persistent in future earnings; however, no empirical evidence was found to support an increase in dividends in response to unrealised FVA gains. By contrast, when the setting is limited to South African banks only, De Jager (2015:157) found that South African banks have paid the full amount of any unrealised transitory gains as dividends. This study focuses on the effects of FVA adjustments on dividend policy for South African firms, as represented by the firms included in the FTSE/JSE Top 40 Index. This furthers De Jager's (2015) study by extending the investigation of the dividend relevance of FVA adjustments from the major South African banks, to South African large firms in general. The results of a panel regression of the net profit of these firms reveal that unrealised FVA adjustments do have a persistent influence on future earnings, indicating that these adjustments contain both transitory and persistent elements. A further panel regression of the annual dividends declared by these firms indicates that dividend payments do include a portion of unrealised FVA gains, as expected by the persistent nature of a portion of these unrealised FVA gains.

自從Sloan (1996)以後，後續研究關於應計有較低盈餘持續性現象之解釋可分為成長因素和會計扭曲。本研究運用Fairfield et al. (2003)與Richardson et al. (2006)之模型擬針對此兩種解釋提出直接的證據，以探討該現象可否完全由成長因素解釋，且在不同成長機會本質下其解釋能力是否仍相同。實證結果發現在Fairfield et al. (2003)之模型下，若控制當期獲利水準，淨營業資產成長和次期資產報酬率會呈負相關，若進一步將淨營業資產區分為應計和長期淨營業資產成長後，發現兩者皆與次期資產報酬率呈相同的負相關，表示成長因素確實是造成應計有較低盈餘持續性的原因。而在Richardson et al. (2006)之模型下，實證結果發現若控制當期獲利水準，並將總營業應計拆解為代表經濟成長特性的「成長要素」和代表暫時性會計扭曲的「要率要素」後，發現兩者皆和次期淨營業資產報酬率呈負相關，且效率要素之負相關程度顯著的大於成長要素。表示成長因素雖可部分解釋應計之較低盈餘持續性現象，但顯然暫時性會計扭曲才是主要原因。另外，本研究為驗證成長機會對盈餘持續性之影響，再進一步將樣本依成長機會之高低分為三群，測試後發現無論在何種成長機會本質下，效率要素的負相關程度還是大於成長要素。表示即使考量不同成長機會因素後，成長因素解釋應計有較低盈餘持續性的能力還是不足暫時性會計扭曲。

A literatura trata a suavização do lucro líquido como uma das proxies para medir a qualidade da informação contábil (DECHOW; GE; SCHRAND, 2010). Porém, pesquisas sobre suavização do lucro líquido são divergentes em responder se essa suavização aumenta ou diminui a qualidade da informação. Existem trabalhos que testam se o aumento da suavização do lucro líquido aumenta a qualidade da informação por meio da persistência do lucro (TUCKER; ZAROWIN, 2006). Sabe-se, todavia, que os investidores não projetam fluxos de caixa futuros das empresas utilizando somente o lucro líquido, mas as contas de resultado que compõem esse lucro, pois são consideradas relevantes no processo de decisão sobre determinado investimento (BARTON; HANSEN; POWNALL, 2010). Entretanto, desconhecese qual o impacto da suavização sobre as contas de resultado que compõem o lucro líquido. Assim, esta pesquisa procura analisar como o objetivo de suavizar o lucro líquido afeta a persistência das contas de resultado que compõem esse lucro. Nesse sentido, as empresas que fazem parte da amostra foram separadas em empresas que mais e menos suavizam o lucro líquido de acordo com três modelos de suavização encontrados na literatura (LEUZ; NANDA; WYSOCKI , 2003; TUCKER; ZAROWIN, 2006). Posteriormente, foram testadas a persistência das contas de resultado, utilizando o modelo de persistência adaptado de Dechow; Ge e Schrand (2010). Os resultados apontam que as empresas que mais suavizam o lucro líquido possuem contas de resultado mais persistentes em relação às contas das empresas que menos suavizam esse lucro. Além disso, as empresas que mais suavizam o lucro líquido com maior quantidade de accruals discricionários possuem determinadas contas de resultado mais persistentes quando comparadas às empresas que mais suavizam esse lucro com menor quantidade de accruals discricionários. Portanto, os resultados sugerem que o gestor esteja suavizando o lucro artificialmente aumentando a persistência de determinadas contas de resultado, o que caracteriza estas persistências como artificiais. Assim, o investidor que projetar fluxos de caixa de empresas que mais suavizam o lucro líquido com maior quantidade de accruals discricionários poderá ter sua decisão prejudicada / The literature treats the income smoothing as one of the proxies to measure the earnings quality (DECHOW; GE; SCHRAND, 2010). However, research on the income smoothing diverges in whether this smoothing increases or decreases the earnings quality. There are studies that test whether the increase in income smoothing increases the quality of information through the earnings persistence (TUCKER; ZAROWIN, 2006). It is known, however, that investors do not project future cash flows of companies using only net income, but the profit and loss accounts that make up this profit since they are considered relevant in the decision process on an investment (BARTON; HANSEN; POWNALL, 2010). However, the impact of income smoothing on the income statements that make up net income is not known. Thus, this research seeks to analyze how the objective of smoothing the net profit affects the persistence of the income accounts that compose this profit. In this sense, the companies that are part of the sample were separated into companies that more and less smooth the net profit according to three models of income smoothing found in the literature (LEUZ; NANDA; WYSOCKI , 2003; TUCKER; ZAROWIN, 2006). Subsequently, the persistence of the profit and loss accounts was tested using the persistence model adapted from Dechow; Ge and Schrand (2010). The results show that the companies that smoothed the net profit have more persistent profit and loss accounts in relation to the accounts of the companies that least smooth their profit. In addition, companies that the most smoothed their net income with greater amount of discretionary accruals have more persistent profit and loss accounts when compared to the companies that most smooth their profit with less amount of discretionary accruals. Therefore, the results suggest that it is possible for the manager being artificially smoothing the profit, making certain profit and loss accounts more persistent, which characterizes persistence as artificial. Thus, the investor who projects future cash flow from companies that the most smooth the net income with greater discretionary accruals may have their decision impaired, since the projection of future cash flow may not represent the expected future financial performance of the company

A literatura trata a suavização do lucro líquido como uma das proxies para medir a qualidade da informação contábil (DECHOW; GE; SCHRAND, 2010). Porém, pesquisas sobre suavização do lucro líquido são divergentes em responder se essa suavização aumenta ou diminui a qualidade da informação. Existem trabalhos que testam se o aumento da suavização do lucro líquido aumenta a qualidade da informação por meio da persistência do lucro (TUCKER; ZAROWIN, 2006). Sabe-se, todavia, que os investidores não projetam fluxos de caixa futuros das empresas utilizando somente o lucro líquido, mas as contas de resultado que compõem esse lucro, pois são consideradas relevantes no processo de decisão sobre determinado investimento (BARTON; HANSEN; POWNALL, 2010). Entretanto, desconhecese qual o impacto da suavização sobre as contas de resultado que compõem o lucro líquido. Assim, esta pesquisa procura analisar como o objetivo de suavizar o lucro líquido afeta a persistência das contas de resultado que compõem esse lucro. Nesse sentido, as empresas que fazem parte da amostra foram separadas em empresas que mais e menos suavizam o lucro líquido de acordo com três modelos de suavização encontrados na literatura (LEUZ; NANDA; WYSOCKI , 2003; TUCKER; ZAROWIN, 2006). Posteriormente, foram testadas a persistência das contas de resultado, utilizando o modelo de persistência adaptado de Dechow; Ge e Schrand (2010). Os resultados apontam que as empresas que mais suavizam o lucro líquido possuem contas de resultado mais persistentes em relação às contas das empresas que menos suavizam esse lucro. Além disso, as empresas que mais suavizam o lucro líquido com maior quantidade de accruals discricionários possuem determinadas contas de resultado mais persistentes quando comparadas às empresas que mais suavizam esse lucro com menor quantidade de accruals discricionários. Portanto, os resultados sugerem que o gestor esteja suavizando o lucro artificialmente aumentando a persistência de determinadas contas de resultado, o que caracteriza estas persistências como artificiais. Assim, o investidor que projetar fluxos de caixa de empresas que mais suavizam o lucro líquido com maior quantidade de accruals discricionários poderá ter sua decisão prejudicada / The literature treats the income smoothing as one of the proxies to measure the earnings quality (DECHOW; GE; SCHRAND, 2010). However, research on the income smoothing diverges in whether this smoothing increases or decreases the earnings quality. There are studies that test whether the increase in income smoothing increases the quality of information through the earnings persistence (TUCKER; ZAROWIN, 2006). It is known, however, that investors do not project future cash flows of companies using only net income, but the profit and loss accounts that make up this profit since they are considered relevant in the decision process on an investment (BARTON; HANSEN; POWNALL, 2010). However, the impact of income smoothing on the income statements that make up net income is not known. Thus, this research seeks to analyze how the objective of smoothing the net profit affects the persistence of the income accounts that compose this profit. In this sense, the companies that are part of the sample were separated into companies that more and less smooth the net profit according to three models of income smoothing found in the literature (LEUZ; NANDA; WYSOCKI , 2003; TUCKER; ZAROWIN, 2006). Subsequently, the persistence of the profit and loss accounts was tested using the persistence model adapted from Dechow; Ge and Schrand (2010). The results show that the companies that smoothed the net profit have more persistent profit and loss accounts in relation to the accounts of the companies that least smooth their profit. In addition, companies that the most smoothed their net income with greater amount of discretionary accruals have more persistent profit and loss accounts when compared to the companies that most smooth their profit with less amount of discretionary accruals. Therefore, the results suggest that it is possible for the manager being artificially smoothing the profit, making certain profit and loss accounts more persistent, which characterizes persistence as artificial. Thus, the investor who projects future cash flow from companies that the most smooth the net income with greater discretionary accruals may have their decision impaired, since the projection of future cash flow may not represent the expected future financial performance of the company

Cette thèse se compose de trois essais sur deux anomalies bien documentées : effet momentum et anomalie des ajustements comptables. Le premier essai examine si l'ampleur de l'anomalie des ajustements comptables est entraînée par la probabilité de détresse financière. Les résultats indiquent que l'anomalie des ajustements comptables est économiquement et statistiquement positive pour les entreprises avec une faible probabilité de détresse financière, mais non significative pour celles avec une forte probabilité de détresse financière. Cela signifie que cette anomalie des ajustements comptables est omniprésente, mais pas limitée aux entreprises avec une faible probabilité de détresse financière. Le deuxième essai étend la question de recherche abordée dans le premier essai au marché boursier émergent du Vietnam. Comme pour les résultats du premier essai, les résultats indiquent que l'anomalie des ajustements comptables est limitée aux stocks avec une faible probabilité de détresse financière. Le dernier essai examine si l'effet momentum se produit sur le marché boursier vietnamien. Les résultats confirment la présence de momentum dans le court terme et révèlent aussi que les rendements gagnants et perdants sont faiblement persistants, mais que la forte corrélation entre ces rendements gagnants et perdants crée des bénéfices momentum significatifs. / This dissertation consists of three essays on two well-documented anomalies: momentum effect and accrual anomaly. The first essay investigates whether the magnitude of accrual anomaly is driven by the financial distress probability. The results indicate that accrual anomaly is economically and statistically positive for firms with low financial distress probability, but insignificant for those with high financial distress probability. This means that that accrual anomaly is not pervasive but limited to firms with low financial distress probability. The second essay extends the research question addressed in the first essay into the emerging stock market of Vietnam. Similar to the findings in the first essay, the results indicate that the accrual anomaly is limited to the stocks with low financial distress probability. The last essay examines whether the momentum effect occurs in the Vietnamese stock market. The results support the occurrence of momentum in the short-run and also reveal that winner and loser returns are low persistent, but the strong correlation between winner and loser returns creates significant momentum profits.