Do nonlinearity, firm-specific coefficients, and losses represent distinctfactors in the relation between stock returns and accounting earnings?

Recent studies have provided theory and evidence that the contemporaneous r elation between stock returns and accounting earnings is nonlinear, differe nt for profits and losses, and different across firms. Since each factor ca n result from differences in earnings persistence, existing theory is ambig uous as to whether these factors are distinct or overlapping. Thus, we cond uct a simultaneous examination. Our primary tests show that each factor exp lains a significant portion of the variance of returns after controlling fo r the other two factors, with firm-specific estimation providing the larges t incremental explanatory power. Alternative tests produce similar conclusi ons. Empirically, the three factors are distinct. (C) 1998 Elsevier Science B.V. All rights reserved.