I examine the implications of changes in operating profit margins during a sales decline for future earnings and abnormal stock returns. When sales decrease, managers decide whether to cut slack resources. Managers who are optimistic about their future operations often retain slack resources in anticipation of resurging sales, thereby decreasing concurrent profitability. Conversely, managers who are pessimistic about their future operations typically reduce slack resources to gain efficiency, thereby increasing concurrent profitability. I find that analysts and investors persistently underestimate the future profitability of firms that exhibit a large decrease in current profitability. I also find that subsequent quarterly earnings announcements gradually reveal future profitability, resulting in concentrated positive abnormal returns in short pre-announcement windows for about a year after a sales decline. These results suggest that analysts and investors have difficulties evaluating managers’ resource adjustment decisions when a large decrease in concurrent profitability can indicate managers’ optimistic expectations. / Business Administration/Accounting
| Identifer | oai:union.ndltd.org:TEMPLE/oai:scholarshare.temple.edu:20.500.12613/2105 |
| Date | January 2017 |
| Creators | Park, Han-Up |
| Contributors | Banker, Rajiv D., Basu, Sudipta, 1965-, Byzalov, Dmitri, Rytchkov, Oleg |
| Publisher | Temple University. Libraries |
| Source Sets | Temple University |
| Language | English |
| Detected Language | English |
| Type | Thesis/Dissertation, Text |
| Format | 96 pages |
| Rights | IN COPYRIGHT- This Rights Statement can be used for an Item that is in copyright. Using this statement implies that the organization making this Item available has determined that the Item is in copyright and either is the rights-holder, has obtained permission from the rights-holder(s) to make their Work(s) available, or makes the Item available under an exception or limitation to copyright (including Fair Use) that entitles it to make the Item available., http://rightsstatements.org/vocab/InC/1.0/ |
| Relation | http://dx.doi.org/10.34944/dspace/2087, Theses and Dissertations |
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