Market and Long Term Accounting Operational Performance

TL;DR

This study investigates whether the Brazilian stock market differentiates companies based on long-term operational performance using accounting data and stock prices from 1996 to 2009, revealing market differentiation mainly between high and low performers.

Contribution

It introduces a novel index performance summary to classify companies' long-term operational performance and applies panel data regressions to analyze market differentiation.

Findings

Market differentiates high and low performers.

Medium performers are less distinctly recognized.

Not all accounting variables align with hypotheses.

Abstract

Following the value relevance literature, this study verifies whether the marketplace differentiates companies of high, medium, and low long-term operational performance, measured by accounting information on profitability, sales variation and indebtedness. The data comprises the Corporate Financial Statements disclosed during the period from 1996 to 2009 and stock prices of companies listed on the Sao Paulo Stock Exchange and Commodities and Futures Exchange - BM&FBOVESPA. The final sample is composed of 142 non-financial companies. Five year mobile windows were used, which resulted in ten five-year periods. After checking each company indices, the accounting variables were unified in an Index Performance Summary to synthesize the final performance for each five-year period, which allowed segregation in operational performance levels. Multiple regressions were performed using panel data techniques, fixed effects model and dummies variables, and then hypothesis tests were made. Regarding the explanatory power of each individual variable, the results show that not all behaviors are according to the research hypothesis and that the Brazilian stock market differentiates companies of high and low long-term operational performance. This distinction is not fully perceived between companies of high and medium operational performance.