Can We (Still) Predict Future Earnings? The Case of China and Indonesia

Abstract

Financial information, particularly earnings predictability, is crucial because it can be employed to forecast future performance. This research aims to forecast future earnings in emerging economies by examining earning predictability and its components. This study employed companies listed on Shanghai Stock Exchange (SSE) and Indonesia Stock Exchange (IDX) from 2017 to 2022. Our study's results indicate a detectable pattern in earnings that may be predicted in both markets. The results of our study indicate that future earnings can be forecasted based on past earnings, operating cash flows, and the combination of operating cash flows and accruals. Indonesian enterprises' past earnings have a greater capacity to forecast present earnings. In contrast, Chinese firms' past operating cash flows exhibit more predictability in earnings than Indonesian firms. This study contributes to research on earnings relevance. In practical terms, this study contributes to optimal investment decisions, as SSE and IDX play a significant role in Asian stock exchanges.