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The information content of cash flow data: An empirical investigation
Abstract
Studies of security returns have been dominant in accounting and finance literature for many years. Many of these studies analyzed the relative usefulness of accrual net income versus funds flows. The results have been mixed. This study separates companies into two groups: (1) those that prepare a cash basis statement of changes in financial position, and (2) those that prepare a working capital basis statement of changes in financial position. Multiple regression is used to determine if cash flows are better predictors of stock price returns than net income for the cash sample. For the working capital sample, working capital flows, calculated cash flows, and net income are compared. In addition, two different models are analyzed. The first model employs monthly returns; whereas, the other uses average returns as the dependent variable. For the cash sample, results indicate that regressions using cash variables are generally superior to regressions using a net income variable. For the working capital sample, results indicate that regressions using working capital from operations are superior in 1985. In 1986, regressions using net income are superior. In addition, for the cash sample, the results indicate that neither the monthly return model nor the average return model is consistently superior. For the working capital sample, the average return model is consistently superior.
Subject Area
Accounting
Recommended Citation
Ainsworth, Penne Lyn, "The information content of cash flow data: An empirical investigation" (1988). ETD collection for University of Nebraska-Lincoln. AAI8818605.
https://digitalcommons.unl.edu/dissertations/AAI8818605