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Revenue Persistence within Fiscal Years: Implications for Earnings Persistence
and Post-Earnings Announcement Drift
Dain C. Donelson,
University of Illinois at Urbana - Champaign
ABSTRACT. This study finds that quarterly revenue innovations display higher autocorrelation when both quarters are from the same fiscal year than when quarters are from different fiscal years (“differential persistence”). Differential persistence of revenue innovations is correlated with managerial discretion as firms with larger absolute changes in the ratio of accounts receivable to revenue display significantly larger differential persistence. These findings complement Rangan and Sloan (1998), which attributed the differential persistence of earnings innovations to the expense treatment of the integral approach to interim financial reporting. Finally, investors do not fully update earnings expectations for predictable persistence when earnings innovations are sorted based on revenue information and fiscal quarter. Over one quarter, post-earnings announcement drift is 10.51% for a high-persistence portfolio but statistically and economically insignificant for low-persistence portfolios.
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