Perception of negative earnings persistence and value relevance: Evidence from Zimbabwe

Figures & data

Table 1. Formulae for variables calculated

Variable	Formula
Debt/equity ratio	$\frac{totalliabilities}{marketcapitalisation}$
Average debt/equity ratio	$\frac{debt/equityratio}{numberofyears}$
Net asset value per share	$\frac{marketcapitalisation-totalliabilities}{totalsharesinissue}$

Table 2. ZSE full sample descriptive statistics

Variables	(1)N	(2)Sum	(3)Mean	(4)SD	(5)Min	(6)Max
Average debt/equity	216	713.6	3.304	5.586	0.170	23.82
NAVPS	216	78.91	0.365	2.691	−15.62	27.04
Log Share price	216	−471.7	−2.184	2.069	−9.210	3.584
Log Book value	213	3,725	17.49	1.513	13.61	22.73
Log EBIT	161	2,550	15.84	1.914	11.44	21.47

Table 3. Descriptive statistics for profit reporting firms

Variables	(1)N	(2)Sum	(3)Mean	(4)SD	(5)Min	(6)Max
Average debt/equity	136	144.5	1.062	1.900	0.170	8.410
NAVPS	136	99.42	0.731	3.323	−15.62	27.04
Log Share price	136	−227.2	−1.671	2.127	−6.215	3.584
Log Book value	136	2,429	17.86	1.502	15.16	22.73
Log EBIT	127	2,041	16.07	2.034	12.35	21.47

Table 4. ZSE full sample correlation matrix

	Share price	EBIT	Book value	NAVPS	Average debt/equity
Share price	1
EBIT	0.7759	1
Book value	0.6088	0.8329	1
NAVPS	0.3862	0.387	0.2502	1
Average debt/equity	−0.1402	−0.147	−0.1884	−0.1158	1

Table 5. Correlation matrix for-profit reporting firms

	Share price	EBIT	Book value	NAVPS	Average debt/equity
Share price	1
EBIT	0.7885	1
Book value	0.5935	0.8686	1
NAVPS	0.3978	0.3844	0.2488	1
Average debt/equity	−0.4096	−0.206	−0.3038	−0.0389	1

Table 6. ZSE full sample regression model results

Variables	Model 1Lag(1 1)	Model 2Lag(1 1)	Model 3Lag(1 1)	Model 4Lag(2 4)	Model 5Lag(2 4)	Model 6Lag(2 4)
Lag share price	0.740***	0.770***	0.765***	0.844***	0.830***	0.861***
	(0.151)	(0.133)	(0.147)	(0.138)	(0.114)	(0.073)
Log EBIT	0.367***	0.276**		0.300***	0.255***
	(0.089)	(0.104)		(0.095)	(0.077)
Log of Lag EBIT	−0.066	−0.104		−0.120	−0.157*
	(0.159)	(0.153)		(0.143)	(0.082)
Log book value	0.087		0.331**	0.087		0.223
	(0.181)		(0.130)	(0.210)		(0.177)
Log of Lag book value	−0.271		−0.195	−0.250		−0.100
	(0.172)		(0.138)	(0.176)		(0.180)
Constant	−2.073	−3.118	−2.820	−0.345	−1.928	−2.303
	(1.869)	(2.244)	(2.203)	(1.756)	(1.956)	(2.219)
Number of instruments	31	24	24	31	29	29
Observations	127	127	186	127	127	186
Number of firms	25	25	27	25	25	27
Arellano-Bond test for AR(1)	−2.55	−2.51	−1.86	−2.75	−2.69	−1.89
P-value AR(1)	0.011	0.012	0.063	0.006	0.007	0.058
Arellano-Bond test for AR(2)	−0.44	−0.62	1.00	−0.61	−0.68	0.91
P-value AR(2)	0.661	0.536	0.318	0.544	0.499	0.362
Hansen test statistic	11.26	14.06	14.86	11.02	10.01	17.37
P-value Hansen test	0.665	0.445	0.388	0.923	0.953	0.565

Notes: Standard errors are in parentheses; AR(k) is the test for the k-th order autocorrelation

*** ** and * represent statistical significance at the 1%, 5% and 10% levels

Table 7. Regression and diagnostic test results for profit reporting firms

Variables	Model 7Lag(1 1)	Model 8Lag(1 1)	Model 9Lag(1 1)	Model 10Lag Collapsed	Model 11Lag Collapsed	Model 12Lag Collapsed
Lag share price	0.868***	0.863***	0.830***	0.781***	0.894***	0.897***
	(0.166)	(0.130)	(0.098)	(0.182)	(0.144)	(0.066)
Log EBIT	0.301**	0.256		0.399**	0.208
	(0.128)	(0.172)		(0.164)	(0.141)
Log of lag EBIT	−0.134	−0.175		−0.148	−0.170
	(0.145)	(0.156)		(0.130)	(0.131)
Log Book value	0.075		0.284	0.097		0.366
	(0.290)		(0.195)	(0.224)		(0.229)
Log of Lag Book value	−0.207		−0.115	−0.195		−0.303
	(0.274)		(0.252)	(0.186)		(0.250)
Constant	−0.532	−1.344	−2.935	−2.516	−0.635	−1.025
	(4.461)	(3.048)	(3.174)	(3.400)	(2.769)	(2.201)
Number of instruments	26	24	24	21	19	19
Observations	107	107	119	107	107	119
Number of firms	17	17	17	17	17	17
Arellano-Bond test for AR(1)	−2.55	−2.45	−1.95	−2.49	−2.42	−2.08
P-value AR(1)	0.011	0.014	0.051	0.013	0.016	0.038
Arellano-Bond test for AR(2)	−0.61	−0.55	−1.70	0.16	−0.63	−1.6
P-value AR(2)	0.543	0.582	0.089	0.872	0.527	0.109
Hansen test statistic	9.24	9.02	6.34	4.05	7.03	5.73
P-value Hansen test	0.816	0.83	0.957	0.908	0.634	0.767

Notes: Standard errors are in parentheses; AR(k) is the test for the k-th order autocorrelation

***, ** and * represent statistical significance at the 1%, 5% and 10% levels