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Dissertations

Operating cost structure information: Implications for disclosure, forecasting, and valuation

Tomer Regev, 2001
Faculty Advisor: Stephen Penman

Abstract

The current presentation of financial statements provides scant guidance for constructing the relation between revenues and operating costs. This relation is central for the analysis of profitability and earnings variability, which are key factors in generating operating earnings predictions and in assessing risk. Moreover, commonly used profitability ratios imply that operating earnings are proportional to sales. This paper infuses structure into the analysis of profitability and earnings variability by disaggregating operating costs into three components: a revenue-driven component, a capital-driven component, and a component that does not vary with either revenue or capital. This framework clarifies the relation among revenues, operating costs, and operating earnings. Because cost structure is not observable, I develop a firm-specific time-series estimation procedure that incorporates economic cost theory and accounting conventions with statistical analysis. I then examine the usefulness of cost structure information in (1) predicting next-period operating earnings, (2) assessing both systematic and idiosyncratic risk, and (3) explaining stock prices, while controlling for other information. The results indicate that cost structure information has implications for earnings forecasting, risk assessment, and consequently for equity valuation.

Doctoral Program News

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The August issue of Ideas at Work features research that doctoral candidate Colleen Honigsberg led in conjunction with Sharon Katz.

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Abbie Wazlawek's joint research with Professor Daniel Ames is featured in the June 24th, 2014 edition of Ideas at Work

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Ethan Rouen featured in Ideas at Work

Ethan Rouen's joint research with Professor Dan Amiram is featured in the May 15th, 2014 edition of Ideas at Work

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Rivas Wins Fellowship

The PhD program is proud to congratulate Miguel Duro Rivas, who was awarded the Nasdaq Educational Foundation Doctoral Dissertation Fellowship.

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Wong wins Deloitte Fellowship

We are proud to announce that Yu Ting (Forester) Wong is one of the recipients of the 2014 Deloitte Foundation Doctoral Fellowship in Accounting.

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The PhD Program Congratulates John Yao

PhD student John Yao was a finalist in the 2013 M&SOM (Manufacturing & Service Operations Management) student paper competition.

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Honigsberg Named Postdoctoral Fellow

The PhD program is proud to congratulate Colleen Honigsberg, who was named the Postdoctoral Fellow in Corporate Governance at the Millstein Center at Columbia Law School in October 2013

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