Do funds prefer longitudinal persistence for high and low earnings?

ABSTRACT

This study examines whether securities investment fund ownership correlates with longitudinal persistence for high and low earnings. Using longitudinal data analysis methods, including a Cox proportional hazards regression model and a hierarchical linear regression model, we obtain two main findings: (1) For a low level of earnings, fund ownership not only reduces the likelihood of earnings decline but also increases the likelihood of an upward trend in earnings; (2) For a high level of earnings, fund ownership reduces not only the likelihood of earnings decline but also the likelihood of a downward trend in earnings. Our study provides evidence that funds emphasize firms’ long-term earnings persistence when they choose stocks.

KEYWORDS:

• Fund ownership
• longitudinal earnings persistence
• Cox proportional hazards regression model
• hierarchical linear regression model

JEL CLASSIFICATION:

• G23
• M41
• G34

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the National Natural Science Foundation of China under Grant numbers [72072060, 71902043, and 71602059]; the 13th Five-year Plan for the Development of Philosophy and Social Sciences of Guangzhou, Joint Construction Projects in 2020, China under Grant number [2020GZGJ11]; the Soft Science Research Project of Guangdong Province under Grant number [2020A1010020004]; and the Fundamental Research Funds for the Central Universities of China under Grant number [XYMS202104].