Does stock price reflect earnings persistence? Evidence from Vietnam

Abstract

This paper investigates the persistence of earnings and the contribution of accruals and cash flows component in earnings. We also examine whether earnings, accruals, and cash flows are correctly priced. Our data sample includes 245 listed firms on the Ho Chi Minh City stock exchange covering the period 2007 - 2013. The empirical results show that the earnings persistence rate of Vietnamese firms is quite high. Moreover, we find that the accruals component of earnings causes earnings to be less persistent than the cash flows component of earnings. Further, this study reports that persistence of earnings, cash flows and accruals component are not fully reflected in stock price.