Sustainable earnings: a new eye for emerging finance

ABSTRACT

This study captures Sustainable Earnings as a new measure of earnings. An attempt has been made to find the determinants of sustainable earnings. The sustainable earnings are estimated on the basis of Firm-Specific Approach and Industry-Based Approach. The core and non-core components of earnings have been analysed and it is checked whether core components of earnings are superior to non-core components of earnings or not. Further, Intensity of Core Earnings (ICE) for both approaches have been evaluated and their impact on stock returns have been analysed. The data is analysed through Advanced Dynamic Panel Data Techniques. ICE measures are positively related to the sustainability of earnings. Also, the Core Components of earnings are significantly higher than the non-core components of earnings. The study provides substantial evidence on the sustainability of earnings in Emerging India and can be of immense use to Security Analysts, Assets Management Companies, Firms and Investors.

KEYWORDS:

• Sustainable earnings
• dynamic panel regression
• firm-specific benchmark
• industry-specific benchmark
• net income
• 3-day excess buy and hold stock return and panel data

Acknowledgements

We are thankful to Department of Commerce, University of Delhi; Ratan Tata Library, University of Delhi; Department of Financial Studies, University of Delhi and Institute of Economic Growth for their help in conducting this research.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Where, OI₁= Operating income at year end, OI₀= Operating income at year beginning, RNOA₀= Return on Net Operating Assets and NOA₀= Net Operating Assets.

2 $ICE={\displaystyle \frac{AbsoluteValueoftheCoreComponentofEarnings}{AbsoluteValueofBothCoreandNon-CoreComponentsofEarnings}}$