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(PDF) Earnings, cashflows and returns: Functional relations and the impact of firm size
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window.loswp.work = {"work":{"id":1602705,"created_at":"2012-05-29T13:35:27.165-07:00","from_world_paper_id":65556650,"updated_at":"2024-11-12T15:45:34.760-08:00","_data":{"publisher":"Wiley Online Library","grobid_abstract":"The relation between stock returns, earnings and cashflows is of importance because it directly addresses the issue of whether accounting data provide value relevant information. The empirical evidence to date, however, has documented low explanatory power for earnings and inconclusive incremental information content for cashflows. This research re-evaluates the incremental information content debate using Australian data. Our research is motivated by: recent innovations in research design, including the specification of nonlinear functional relations between accounting variables and prices, and the fact that differences in firm size characteristics may influence the relative information content of the accounting variables. We observe that: (i) a nonlinear functional relation provides greater explanatory power for both earnings and cashflows; (ii) the results are consistent with more transitory earnings components for smaller firms; and (iii) contrary to received theory, cashflows add greater incremental explanatory power for large firms. seminar participants at the Universities of Queensland, New England and Santa Clara, as well as the 1998 AAANZ Conference, are greatly appreciated. We also acknowledge the helpful comments and suggestions of two anonymous referees. content of earnings and cashflows with respect to prices. In summary, the research has documented a positive (but low) information content of earnings for prices 1 ), but has not provided conclusive evidence on the incremental information content of cashflows. Both of these results can be viewed as surprising given the historical emphasis on earnings by accountants and investors, the recent move of accounting bodies to introduce professional standards requiring the mandatory reporting of cashflows, 2 and the professed importance of cashflows to financial analysts Yap, 1997).","publication_date":"2000,1,1","publication_name":"Accounting \u0026 Finance","grobid_abstract_attachment_id":"50909470"},"document_type":"paper","pre_hit_view_count_baseline":0,"quality":"high","language":"en","title":"Earnings, cashflows and returns: Functional relations and the impact of firm size","broadcastable":false,"draft":null,"has_indexable_attachment":true,"indexable":true,"seo_quality":null}}["work"]; window.loswp.workCoauthors = [972981]; window.loswp.locale = "en"; window.loswp.countryCode = "SG"; window.loswp.cwvAbTestBucket = ""; window.loswp.designVariant = "ds_vanilla"; window.loswp.fullPageMobileSutdModalVariant = "full_page_mobile_sutd_modal"; window.loswp.useOptimizedScribd4genScript = false; 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The empirical evidence to date, however, has documented low explanatory power for earnings and inconclusive incremental information content for cashflows. This research re-evaluates the incremental information content debate using Australian data. Our research is motivated by: recent innovations in research design, including the specification of nonlinear functional relations between accounting variables and prices, and the fact that differences in firm size characteristics may influence the relative information content of the accounting variables. We observe that: (i) a nonlinear functional relation provides greater explanatory power for both earnings and cashflows; (ii) the results are consistent with more transitory earnings components for smaller firms; and (iii) contrary to received theory, cashflows add greater incremental explanatory power for large firms. seminar participants at the Universities of Queensland, New England and Santa Clara, as well as the 1998 AAANZ Conference, are greatly appreciated. We also acknowledge the helpful comments and suggestions of two anonymous referees. content of earnings and cashflows with respect to prices. In summary, the research has documented a positive (but low) information content of earnings for prices 1 ), but has not provided conclusive evidence on the incremental information content of cashflows. Both of these results can be viewed as surprising given the historical emphasis on earnings by accountants and investors, the recent move of accounting bodies to introduce professional standards requiring the mandatory reporting of cashflows, 2 and the professed importance of cashflows to financial analysts Yap, 1997).</p></div></div><div class="ds-top-related-works--grid-container"><div class="ds-related-content--container ds-top-related-works--container"><h2 class="ds-related-content--heading">Related papers</h2><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="0" data-entity-id="116456115" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/116456115/The_Association_Between_Various_Earnings_and_Cash_Flow_Measures_of_Firm_Performance_and_Stock_Returns_Some_Australian_Evidence">The Association Between Various Earnings and Cash Flow Measures of Firm Performance and Stock Returns: Some Australian Evidence</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="141789782" href="https://independent.academia.edu/AAzarberahman">Alireza Azarberahman</a></div><p class="ds-related-work--metadata ds2-5-body-xs">SSRN Electronic Journal, 2005</p><p class="ds-related-work--abstract ds2-5-body-sm">The main purpose of this research is the study of association between various measures of firm performance based on earnings and cash flows and stock returns. This research is an applied research, and its design is semi-empirical, which is done by the method of post-event (past information). The statistical population of the research includes all companies listed in Tehran Stock Exchange (TSE), and its period is nine consecutive years, from 2003 to 2011. Simple and multiple regressions are applied in order to test the hypotheses. Results of the research represent that earning based measures are more related to stock returns than cash flow based measures. Furthermore, earning based measures depict the company performance better than cash flow measures in some companies with higher accruals. But in companies with lower accruals, the company performance cannot be depicted properly neither by earning based nor cash flow based measures.</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"The Association Between Various Earnings and Cash Flow Measures of Firm Performance and Stock Returns: Some Australian Evidence","attachmentId":112581888,"attachmentType":"pdf","work_url":"https://www.academia.edu/116456115/The_Association_Between_Various_Earnings_and_Cash_Flow_Measures_of_Firm_Performance_and_Stock_Returns_Some_Australian_Evidence","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/116456115/The_Association_Between_Various_Earnings_and_Cash_Flow_Measures_of_Firm_Performance_and_Stock_Returns_Some_Australian_Evidence"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="1" data-entity-id="27691974" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/27691974/The_role_of_accruals_and_cash_flows_in_explaining_security_returns_Evidence_from_New_Zealand">The role of accruals and cash flows in explaining security returns: Evidence from New Zealand</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="8573363" href="https://uga.academia.edu/ahsanhabib">ahsan habib</a></div><p class="ds-related-work--metadata ds2-5-body-xs">Journal of International Accounting, Auditing and Taxation, 2008</p><p class="ds-related-work--abstract ds2-5-body-sm">This paper empirically examines the relative and incremental information content of earnings and cash flows and the role of firmspecific contextual factors in moderating information content in New Zealand. Accounting earnings are considered to be the premier information source for decision making and a substantial volume of literature, primarily in the United States, shows that earnings provide superior information to that of cash flows. However, significant reporting differences in New Zealand warrant and investigation of the role of earnings and cash flows to explain security returns. Results show that (a) earnings have higher explanatory power than cash flows, although the difference is not statistically significant, and (b) both earnings and cash flows have incremental information content for stock returns. Further analysis shows that the valuation role of earnings and cash flows is moderated by firm-specific factors.</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"The role of accruals and cash flows in explaining security returns: Evidence from New Zealand","attachmentId":47957199,"attachmentType":"pdf","work_url":"https://www.academia.edu/27691974/The_role_of_accruals_and_cash_flows_in_explaining_security_returns_Evidence_from_New_Zealand","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/27691974/The_role_of_accruals_and_cash_flows_in_explaining_security_returns_Evidence_from_New_Zealand"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="2" data-entity-id="39414117" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/39414117/How_Do_Earnings_Numbers_Relate_to_Stock_Returns_A_Review_of_Classic_Accounting_Research_with_Updated_Evidence">How Do Earnings Numbers Relate to Stock Returns? A Review of Classic Accounting Research with Updated Evidence</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="116225348" href="https://lancaster.academia.edu/travelNiki">travel Niki</a></div><p class="ds-related-work--abstract ds2-5-body-sm">SYNOPSIS: An extensive body of academic research in accounting develops theory and empirical evidence on the relation between eamings information and stock returns. This literature provides important insights for understanding the relevance of financial reporting. In this article, we summarize the theory and evidence on how accounting eamings information relates to firms' stock returns, particularly for the benefit of students , practitioners, and others who may not yet have been exposed to this literature. In addition, we present new empirical evidence on the relation between eamings and returns by replicating and extending three classic studies using data from 1988 through 2002. Specifically, we first demonstrate the relation between eamings changes and stock returns, replicating Ball and Brown (1968), and we compare that relation to the relation between changes in cash flows from operations and stock returns. Second, we demonstrate the impact of eamings persistence on stock returns, extending findings from studies such as Kormendi and Lipe (1987), and highlighting the effects of differences in persistence across eamings increases and decreases. Third, we provide evidence to assess the efficiency with which the capital markets impound quarterly earnings information into share prices, showing that the post-earnings-announcement-drifl results of Bernard and Thomas (1989) extend to recent data.</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"How Do Earnings Numbers Relate to Stock Returns? A Review of Classic Accounting Research with Updated Evidence","attachmentId":59559161,"attachmentType":"pdf","work_url":"https://www.academia.edu/39414117/How_Do_Earnings_Numbers_Relate_to_Stock_Returns_A_Review_of_Classic_Accounting_Research_with_Updated_Evidence","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/39414117/How_Do_Earnings_Numbers_Relate_to_Stock_Returns_A_Review_of_Classic_Accounting_Research_with_Updated_Evidence"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="3" data-entity-id="7797106" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/7797106/Accounting_earnings_and_cash_flows_as_measures_of_firm_performance_The_role_of_accounting_accruals">Accounting earnings and cash flows as measures of firm performance The role of accounting accruals</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="14427103" href="https://reading.academia.edu/RubyYu">Ruby Yu</a></div><p class="ds-related-work--abstract ds2-5-body-sm">under which accruals are predicted to improve earnings' ability to measure firm performance, as reflected in stock returns. The importance of accruals is hypothesized to increase (i) the shorter the performance measurement interval, (ii) the greater the volatility of the firm's working capital requirements and investment and financing activities, and (iii) the longer the firm's operating cycle. Under each of these circumstances, cash flows are predicted to suffer more severely from timing and matching problems that reduce their ability to reflect firm performance. The results of empirical tests are consistent with these predictions.</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"Accounting earnings and cash flows as measures of firm performance The role of accounting accruals","attachmentId":34304555,"attachmentType":"pdf","work_url":"https://www.academia.edu/7797106/Accounting_earnings_and_cash_flows_as_measures_of_firm_performance_The_role_of_accounting_accruals","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/7797106/Accounting_earnings_and_cash_flows_as_measures_of_firm_performance_The_role_of_accounting_accruals"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="4" data-entity-id="15504300" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/15504300/Is_stock_price_a_good_measure_for_assessing_value_relevance_of_earnings_An_empirical_test">Is stock price a good measure for assessing value-relevance of earnings? An empirical test</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="34654967" href="https://stern-nyu.academia.edu/JoshuaRonen">Joshua Ronen</a></div><p class="ds-related-work--metadata ds2-5-body-xs">Review of Managerial Science, 2007</p><p class="ds-related-work--abstract ds2-5-body-sm">Recently, a growing bozdy of literature has created a widespread impression that financial statements have lost their value-relevance because of a shift from traditional capital-intensive economy into a high technology, serviceoriented economy. In particular, the claim is that financial statements are less relevant in assessing the fundamental value of high technology, service-oriented firms/activities, which are by nature knowledge-intensive. These conclusions are based on past studies that examine the association between accounting numbers (i.e., earnings and book values) and stock prices and show that, in general, the association between accounting information and stock prices has been declining, over time. These findings have been interpreted to be the result of a decline in value relevance of accounting. We examine the predictive content of stock prices and accounting information, as against the contemporaneous association between accounting information and stock prices. We find that while both the predictive content of earnings and prices declined over time, the predictive content of price signals declined by even more. Our analysis suggests that the declining association could be the consequence of increased noise in stock prices over time resulting from increases in trading volume driven by non-information based trades, and not just a A. Dontoh decline in the predictive content of earnings. More importantly, this conclusion is consistent with the insights of the noisy rational expectations equilibrium framework analysis, i.e. that increased noise has caused the predictive content of prices to degrade over time. Overall, our evidence suggests that stock prices may not be an appropriate benchmark for gauging the information content of accounting earnings.</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"Is stock price a good measure for assessing value-relevance of earnings? An empirical test","attachmentId":43140800,"attachmentType":"pdf","work_url":"https://www.academia.edu/15504300/Is_stock_price_a_good_measure_for_assessing_value_relevance_of_earnings_An_empirical_test","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/15504300/Is_stock_price_a_good_measure_for_assessing_value_relevance_of_earnings_An_empirical_test"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="5" data-entity-id="54358125" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/54358125/Discussion_of_The_Incremental_Information_Content_of_Accruals_Evidence_Based_on_the_Exponential_Smoothing_of_Levels_and_Trends_in_Pre_tax_Earnings_Funds_Flow_and_Cash_Flow">Discussion of The Incremental Information Content of Accruals: Evidence Based on the Exponential Smoothing of Levels and Trends in Pre-tax Earnings, Funds Flow and Cash Flow</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="153486717" href="https://kcl.academia.edu/ColinClubb">Colin Clubb</a></div><p class="ds-related-work--metadata ds2-5-body-xs">Journal of Business Finance <html_ent glyph="@amp;" ascii="&amp;"/> Accounting, 1997</p><p class="ds-related-work--abstract ds2-5-body-sm">The paper by Stuart McLeay, John Kassab and Mahmoud Helan (MKH) examines the incremental information content of current and non-current accruals beyond accounting earnings using data from a sample of 104 UK companies over the period 1975^1993. The paper extends previous studies of the relationship between unexpected returns and unexpected earnings, noncurrent accruals and current accruals (or, alternatively, the relationship between unexpected returns and unexpected earnings, working capital from operations and cash flow from operations) in a number of respects and provides evidence of a small but statistically significant explanatory role for accruals beyond accounting earnings. In the following discussion, I first consider the methodology employed and contrast this with previous approaches. Second, I consider the empirical findings from the study and compare these with previous UK findings. Finally, I offer some suggestions on how the study could be extended and briefly consider some issues relating to the policy implications of capital market analyses of this type. METHODOLOGY The methodology used by the authors involved two main stages. First, individual firm measures of earnings (E), working capital from operations (WCO) and cash flow from operations (CFO) for the available time period were used to estimate individual firm prediction models for each of these variables based on the assumption of a two-parameter exponential smoothing model. Second, the deviations of realised observations of the above variables from the fitted value were used to obtain annual time series of surprises in earnings, current accruals (CA) and non-current accruals (NCA) for each firm for use as explanatory variables for unexpected returns in cross-sectional,</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"Discussion of The Incremental Information Content of Accruals: Evidence Based on the Exponential Smoothing of Levels and Trends in Pre-tax Earnings, Funds Flow and Cash Flow","attachmentId":70760739,"attachmentType":"pdf","work_url":"https://www.academia.edu/54358125/Discussion_of_The_Incremental_Information_Content_of_Accruals_Evidence_Based_on_the_Exponential_Smoothing_of_Levels_and_Trends_in_Pre_tax_Earnings_Funds_Flow_and_Cash_Flow","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/54358125/Discussion_of_The_Incremental_Information_Content_of_Accruals_Evidence_Based_on_the_Exponential_Smoothing_of_Levels_and_Trends_in_Pre_tax_Earnings_Funds_Flow_and_Cash_Flow"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="6" data-entity-id="59380772" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/59380772/Accounting_Earnings_Permanent_Cash_Flow_and_the_Distribution_of_the_Earnings_to_Price_Ratio">Accounting Earnings, Permanent Cash Flow and the Distribution of the Earnings to Price Ratio</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="135206" href="https://uct.academia.edu/NicholasBiekpe">Nicholas Biekpe</a></div><p class="ds-related-work--metadata ds2-5-body-xs">The British Accounting Review, 1998</p><p class="ds-related-work--abstract ds2-5-body-sm">This paper explores the suggestion that users of financial statements seek a 'normalized' version of earnings from which to estimate equity value. We argue that this leads to a theory of earnings to price ratios which is rooted in the certainty-based 'economic income' models of Hicks. Methods laid down in previous research are then used in conjunction with a neoclassical model of capital accumulation to generalize the Hicksian income model to uncertainty. Our analysis shows that in 'steady state', Pearson's Type IV distribution ought to be a good candidate for the statistical process which describes the evolution of the earnings to price ratio. This, in turn, implies that the probability density for the earnings to price ratio will be skewed, with the possibility of 'thin' or 'fat' tails relative to the normal distribution. Also, some of the lower moments may not exist. Our empirical evidence is in broad agreement with these predictions.</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"Accounting Earnings, Permanent Cash Flow and the Distribution of the Earnings to Price Ratio","attachmentId":73333073,"attachmentType":"pdf","work_url":"https://www.academia.edu/59380772/Accounting_Earnings_Permanent_Cash_Flow_and_the_Distribution_of_the_Earnings_to_Price_Ratio","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/59380772/Accounting_Earnings_Permanent_Cash_Flow_and_the_Distribution_of_the_Earnings_to_Price_Ratio"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="7" data-entity-id="18672774" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/18672774/The_Relative_and_Incremental_Information_Content_of_Accounting_Earnings_versus_the_Cash_Recovery_Rate_">The Relative and Incremental Information Content of Accounting Earnings versus the Cash Recovery Rate*</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="38747628" href="https://utoledo.academia.edu/HassanHassabelnaby">Hassan Hassabelnaby</a></div><p class="ds-related-work--metadata ds2-5-body-xs">SSRN Electronic Journal, 2000</p><p class="ds-related-work--abstract ds2-5-body-sm">This paper presents an investigation of the listed companies in Palestine Security Exchange (PSE). This investigation examines the relative and incremental information content of earnings (EPS) and operating cash flows (OCF). In addition, this paper aims to test the impact of losses on the information content of EPS and OCF. This study uses the accounting data of the companies that listed in the PSE from 2004-2008. Furthermore, it employs a variety of statistical procedures (descriptive analysis, correlation test, regression analysis, and Akaike's information criterion (AIC) and Vuong's test for model selection). Also, 23 Palestinian corporations were selected for testing the hypotheses. The results of this paper indicate the existence of value relevance of earnings whereas there is no sufficient evidence to confirm that operating cash flows has information content. Moreover, any firm that achieves profit will have a positive impact on the value relevance on its earnings and operating cash flows.</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"The Relative and Incremental Information Content of Accounting Earnings versus the Cash Recovery Rate*","attachmentId":40193550,"attachmentType":"pdf","work_url":"https://www.academia.edu/18672774/The_Relative_and_Incremental_Information_Content_of_Accounting_Earnings_versus_the_Cash_Recovery_Rate_","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/18672774/The_Relative_and_Incremental_Information_Content_of_Accounting_Earnings_versus_the_Cash_Recovery_Rate_"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="8" data-entity-id="11426026" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/11426026/Do_Stock_Prices_Fully_Reflect_Information_in_Accruals_and_Cash_Flows_about_Future_Earnings">Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="27807573" href="https://independent.academia.edu/JawadMohammad2">Jawad Mohammad</a></div><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings","attachmentId":36974022,"attachmentType":"pdf","work_url":"https://www.academia.edu/11426026/Do_Stock_Prices_Fully_Reflect_Information_in_Accruals_and_Cash_Flows_about_Future_Earnings","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/11426026/Do_Stock_Prices_Fully_Reflect_Information_in_Accruals_and_Cash_Flows_about_Future_Earnings"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div><div class="ds-related-work--container js-wsj-grid-card" data-collection-position="9" data-entity-id="112494074" data-sort-order="default"><a class="ds-related-work--title js-wsj-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/112494074/Earnings_versus_Cash_Flows_Evidence_from_Pakistan">Earnings versus Cash Flows: Evidence from Pakistan</a><div class="ds-related-work--metadata"><a class="js-wsj-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="107554558" href="https://iiu-pk.academia.edu/KhanNaveed">Naveed Khan</a></div><p class="ds-related-work--metadata ds2-5-body-xs">Advances in Business and Commerce (ABC) , 2023</p><p class="ds-related-work--abstract ds2-5-body-sm">The performance and evaluation of firms has always been a matter of concern for market participants. Therefore, we examine the potential impact of different performance and evaluation measures including earnings and cash flows to determine the measure that best apprehends the firm performance in stock returns. Moreover, we also examine the role of accruals in this regard. For the empirics we take sample comprised of actively traded companies of the textile sector of Pakistan and employed panel data regression models to test the hypothesis of the study. After the analysis, we find that earnings possess supremacy over cash flows in explaining the stock returns. Further, we document that the finding is specifically true in the case of profit-making firms. Where in case of loss-making firms, neither earnings nor cash flows better reflect the firms' performance. Similarly, we find that when the size of accruals is increased, the earnings undoubtedly gain potential to disclose the firm performance, thus weakening the capability of cash flows in this connection.</p><div class="ds-related-work--ctas"><button class="ds2-5-text-link ds2-5-text-link--inline js-swp-download-button" data-signup-modal="{"location":"wsj-grid-card-download-pdf-modal","work_title":"Earnings versus Cash Flows: Evidence from Pakistan","attachmentId":109707683,"attachmentType":"pdf","work_url":"https://www.academia.edu/112494074/Earnings_versus_Cash_Flows_Evidence_from_Pakistan","alternativeTracking":true}"><span class="material-symbols-outlined" style="font-size: 18px" translate="no">download</span><span class="ds2-5-text-link__content">Download free PDF</span></button><a class="ds2-5-text-link ds2-5-text-link--inline js-wsj-grid-card-view-pdf" href="https://www.academia.edu/112494074/Earnings_versus_Cash_Flows_Evidence_from_Pakistan"><span class="ds2-5-text-link__content">View PDF</span><span class="material-symbols-outlined" style="font-size: 18px" translate="no">chevron_right</span></a></div></div></div></div><div class="ds-sticky-ctas--wrapper js-loswp-sticky-ctas hidden"><div class="ds-sticky-ctas--grid-container"><div class="ds-sticky-ctas--container"><button class="ds2-5-button js-swp-download-button" data-signup-modal="{"location":"continue-reading-button--sticky-ctas","attachmentId":50909470,"attachmentType":"pdf","workUrl":null}">See full PDF</button><button class="ds2-5-button ds2-5-button--secondary js-swp-download-button" data-signup-modal="{"location":"download-pdf-button--sticky-ctas","attachmentId":50909470,"attachmentType":"pdf","workUrl":null}"><span class="material-symbols-outlined" style="font-size: 20px" translate="no">download</span>Download PDF</button></div></div></div><div class="ds-below-fold--grid-container"><div class="ds-work--container js-loswp-embedded-document"><div class="attachment_preview" data-attachment="Attachment_50909470" style="display: none"><div class="js-scribd-document-container"><div class="scribd--document-loading js-scribd-document-loader" style="display: block;"><img alt="Loading..." src="//a.academia-assets.com/images/loaders/paper-load.gif" /><p>Loading Preview</p></div></div><div style="text-align: center;"><div class="scribd--no-preview-alert js-preview-unavailable"><p>Sorry, preview is currently unavailable. You can download the paper by clicking the button above.</p></div></div></div></div><div class="ds-sidebar--container js-work-sidebar"><div class="ds-related-content--container"><h2 class="ds-related-content--heading">Related papers</h2><div class="ds-related-work--container js-related-work-sidebar-card" data-collection-position="0" data-entity-id="53425577" data-sort-order="default"><a class="ds-related-work--title js-related-work-grid-card-title ds2-5-body-md ds2-5-body-link" href="https://www.academia.edu/53425577/Operating_Cash_Flow_and_Earnings_Under_IFRS_GAAP_Evidence_from_Australia_France_and_UK">Operating Cash Flow and Earnings Under IFRS/GAAP: Evidence from Australia, France & UK</a><div class="ds-related-work--metadata"><a class="js-related-work-grid-card-author ds2-5-body-sm ds2-5-body-link" data-author-id="169592118" href="https://independent.academia.edu/AgborTabot">Agbor Tabot</a></div><p class="ds-related-work--metadata ds2-5-body-xs">SSRN Electronic Journal, 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