Date of Award

5-2013

Document Type

Honors Thesis

Degree Name

Bachelor of Arts

Department

Accounting

First Advisor

Uday Chandra

Abstract

Accounting earnings are widely used by investors, creditors and financial analysts as a measure of operating performance in valuing firms. However, accountants trade off relevance in decision making in favor of reliability in computing earnings. This study uses an analysis based on stock prices to examine the effectiveness of the earnings number in measuring the operating performance of a firm under different situations where it may be less accurate: when Research and Development Expense, Pension Expense, Special Items, and Income from Discontinued Operations are disproportionately large in magnitude. The results are generally consistent with my hypotheses. The results of this study are potentially important as they may prompt users to use a lower weight on the earnings number – and higher weights on non-earnings information – in valuing firms when the components of earnings examined in this study are of larger magnitude.

Included in

Accounting Commons

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