Review of Quantitative Finance and Accounting

, Volume 32, Issue 2, pp 145–168 | Cite as

Measuring the impact of sales on earnings and equity price

  • Oliver Kim
  • Steve C. Lim
  • Taewoo Park
Original Research


In this paper we examine how sales affect earnings and in turn the stock price using a model in which sales contribute to earnings by a fixed sales margin rate and the stock price responds more sensitively to sales-induced earnings than to non-sales-induced earnings. We report that the regression coefficient of the sales margin (2.54) is about three times the earnings response coefficient (0.85) for the full sample and can be as high as 19 times the earnings response coefficient for an industry (i.e., 11.95 vs. 0.62 for restaurants). We contribute to the literature by identifying and documenting factors that make separating out the sources of earnings more important in equity pricing.


Sales Earnings Equity price 

JEL Classification




Kim and Lim thank Robert H. Smith School of Business of University of Maryland and the Charles Tandy American Enterprise Center at TCU, respectively, for financial support.


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Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.University of MarylandCollege ParkUSA
  2. 2.M.J. Neeley School of BusinessTexas Christian UniversityFort WorthUSA
  3. 3.Kennesaw State UniversityKennesawUSA

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