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Sanjeev is analysing the financial statements of two book retail companies, ReadBooks Ltd and GreatReads Ltd. Using their annual reports for the past 20 years,

Sanjeev is analysing the financial statements of two book retail companies, ReadBooks Ltd and GreatReads Ltd. Using their annual reports for the past 20 years, Sanjeev estimates their earnings persistence (after scaling earnings by lag total assets) as follows:

Company Coefficient on Et-1 p- value

Readbooks Ltd 0.673 0.139

GreatReads Ltd 0.596 0.089

Based on the above results, Sanjeev concludes that ReadBooks Ltd has higher earnings persistence because it has a larger coefficient on Et-1,based on the regression model. Do you agree? Explain.

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