The relative information content of cash flows and earnings affected by their extremity

2014 ◽  
Vol 40 (7) ◽  
pp. 646-661 ◽  
Author(s):  
Wael Mostafa
Keyword(s):  
Stock Returns ◽  
Information Content ◽  
Statistical Significance ◽  
Explanatory Power ◽  
Cash Flows ◽  
Content Type ◽  
Nested Models ◽  
Relative Information ◽  
Security Returns ◽  
Relative Information Content

Purpose – Many studies examine the relative information content of earnings and cash flows from operations. Most studies find that earnings have higher information content than cash flows. An interesting question that follows is whether these findings hold after controlling the extremity of earnings and cash flows. The purpose of this paper is to examine the relative information content of earnings and cash flows in the following four different cases: first, moderate earnings vs moderate cash flows, second, extreme earnings vs moderate cash flows, third, moderate earnings vs extreme cash flows, and fourth, extreme earnings vs extreme cash flows. Design/methodology/approach – To assess the relative information content of earnings and cash flows for each of the four cases mentioned above, the authors compare the explanatory power for regression of returns on unexpected earnings relative to regression of returns on unexpected cash flows. Therefore, the author compares the adjusted R2 of the model with earnings variables and the model with cash flows variables using Vuong's test, that examines the statistical significance of the difference between adjusted R2s of the rival (non-nested) models, and interpret a statistically higher adjusted R2 as an indicator for higher relative information content. Findings – The results show that: first, when both earnings and cash flows are moderate, earnings are more highly associated with stock market price changes than cash flows, second, when both earnings and cash flows are extreme, earnings also have greater relative information content than cash flows, third, when the extremity differs between earnings and cash flows, the moderate variable is superior to the other extreme variable in explaining security returns. These results suggest that earnings are definitely more value relevant than cash flows. However, only in cases when cash flows from operations are moderate and earnings are extreme, cash flows possess higher information content than earnings. Practical implications – The explanatory power for stock returns will be higher for earnings or cash flows depending on which is more highly persistent. This result reverses the conventional finding of the superiority of earnings over cash flows in explaining security returns. Originality/value – In contrast to previous studies, the authors control for the extremity of earnings and cash flows when evaluating the relative information content of earnings and cash flows from operations.

scholarly journals Perbandingan Pengaruh Laba dan Value Added pada Return Saham

2019 ◽  
pp. 1038
Author(s):  
Gentha Putri Wardana ◽  
Dewa Gede Wirama
Keyword(s):  
Stock Returns ◽  
Information Content ◽  
Stock Exchange ◽  
Economic Value ◽  
Value Added ◽  
Theoretical Implication ◽  
Performance Measure ◽  
Company Performance ◽  
Relative Information ◽  
Relative Information Content

The information of value added is considered to be a better company performance measure and has better association on stock returns compared to earning information that is often used. This study aims to compare the relative information content of earnings and value added in explaining stock returns. This research conducted on all companies listed on the Indonesia Stock Exchange in 2013-2017. 308 samples were taken using random sampling method. The data analysis technique was simple linear regression. It was found that EVA and FVA as proxies of value added outperformed earnings. EVA is also found to be more associated with stock returns compared to FVA. The theoretical implication is in addition to references to further research regarding company performance measurement and stock returns. The practical implications is a matter of consideration for investors to make investment decisions and reference for corporate in financial decision making according to preferences of shareholders. Keywords: Earning, economic value added, financial value added, stock return, relative information content  

scholarly journals Information content and informativeness of analysts’ report: evidence from Malaysia

2018 ◽  
Vol 16 (4) ◽  
pp. 742-763 ◽  
Author(s):  
Hassanudin Mohd Thas Thaker ◽  
Azhar Mohamad ◽  
Nazrol Kamil Mustaffa Kamil ◽  
Jarita Duasa
Keyword(s):  
Stock Returns ◽  
Information Content ◽  
Abnormal Return ◽  
Descriptive Analysis ◽  
Strong Association ◽  
Cash Flows ◽  
Price Ratio ◽  
Cumulative Abnormal Return ◽  
Target Price ◽  
Content Type

PurposeThis study aims to document the influence of information content and the informativeness of analyst reports towards cumulative abnormal return in the Malaysian market.Design/methodology/approachSamples of analyst reports for the period 4th January 2010 until 24th December 2015 were collected from the Bursa Malaysia’s repository system for daily basis information. The study uses market-adjusted method for the calculation of cumulative abnormal return and panel regression to test the research objective. In addition, diagnostic tests, which include the variance inflation factor (VIF), correlation analysis, heteroscedasticity tests, serial auto-correlation and the Hausman test, were also performed to ensure the validity and reliability of the data.FindingsResult from the unbalanced panel data reveals that not all information contained in the analyst reports is able to detect stock returns movement. Only five variables are shown to have a strong association with the returns, and these are target price, earnings forecast, return on equity, cash flows to price and sales to price ratio. TheR-square value has also been shown to be relatively low (0.79 per cent), indicating the low predictive power of information content and the informativeness of the analyst report in explaining stock returns. To support the findings based on the knowledge obtained, a descriptive analysis on whether the analyst reports were able to predict the recommendation accurately was performed. Result from the descriptive analysis shows that only 57 per cent of the recommendations are accurate, evidenced by the differing target price and ending price. This outcome appears to contradict the theory of signalling hypothesis. Hence, it can be concluded that analyst reports have less informational role among investors.Originality/valueThis paper has, thus, provided insight into how information disclosed in the analyst report influence the return of stocks, further extending the limited research on analyst report in the context of the Malaysian markets. The paper has also added to the existing literature by providing several implications to practitioners and researchers alike.

scholarly journals Simulation evidence on the properties of alternative measures of working capital accruals

2017 ◽  
Vol 25 (4) ◽  
pp. 378-394
Author(s):  
Javad Izadi Zadeh Darjezi ◽  
Homagni Choudhury ◽  
Alireza Nazarian
Keyword(s):  
Cash Flow ◽  
Estimation Error ◽  
Explanatory Power ◽  
Cash Flows ◽  
Working Capital ◽  
Accrual Quality ◽  
Content Type ◽  
Explanatory Variables ◽  
Study Results ◽  
The Uk

Purpose This paper aims to investigate the specification and power of tests based on the DD and modified DD model through the UK data between years 2000 and 2013, and make comparisons with tests using working capital accruals creating a measure of accruals quality as the standard deviation of the residuals value from firm-specific regressions base on working capital accruals on last, current and one-year-ahead cash flows from operations. Design/methodology/approach This study focuses both on the DD model and modified DD model to find out which of them can more accurately capture total working capital accrual estimation error and accrual quality. According to the DD model, the past, current and future net cash from operating activities as the three years’ operating cash inflows or outflows become omitted and correlated variables. In this study, the authors continue to document residuals from the DD and MDD models to demonstrate properties that are more consistent with behaviours of accruals estimation errors. Therefore, in this study, the authors are looking to compare the results from both the MDD and DD models and find which one of them is more effective in explaining the working capital accruals in the UK. Findings The authors find that adding additional explanatory variables may add additional explanatory power of variables to the DD model and extent to which accruals map into cash flow insights based on the UK data. This study is empirically well fitting with the internal workings of cash flows. As investors fixate only on the accounting earnings, they may fail to reflect fully on information contained within cash flow components and working capital accruals of current and future earnings. Originality/value The authors compare different equation to cover more items of working capital accruals. In addition, after examining earnings and accrual quality, the findings show that the average UK company behaviour was quite similar to the behaviour that was founded earlier for both models in the USA. Furthermore, this study results show that more volatility of sales, cash flow, accruals and earnings make a lower accrual quality. The results demonstrate that both models can capture the power to predict working capital accruals. Moreover, we find that adding additional explanatory variable of employee growth rate adds additional explanatory variables to DD model.

scholarly journals Book-to-Market Ratio, return on equity and Brazilian Stock Returns

2018 ◽  
Vol 53 (3) ◽  
pp. 324-344 ◽  
Author(s):  
Rebeca Cordeiro da Cunha Araújo ◽  
Márcio André Veras Machado
Keyword(s):  
Risk Factors ◽  
Stock Returns ◽  
Capital Market ◽  
Explanatory Power ◽  
Predictor Variable ◽  
Liquidity Premium ◽  
Future Expectations ◽  
Content Type ◽  
Return On Equity ◽  
Book To Market Ratio

Purpose This study aims to analyze the influence of future expectations of the book-to-market ratio (B/M) and return on equity (ROE) in explaining the Brazilian capital market returns. Design/methodology/approach The study analyzed the explanatory power of risk-factor approach variables such as beta, size, B/M ratio, momentum and liquidity. Findings The results show that future expectations of the B/M ratio and ROE, when combined with proxies for risk factors, were able to explain part of the variations of Brazilian stock returns. With respect to risk factors approach variables, the authors verified the existence of size and B/M effects and a liquidity premium in the Brazilian capital market, during the period analyzed. Research limitations/implications This research was limited to the non-financial companies with shares traded at Brasil, Bolsa and Balcão, from January 1, 1995 to June 30, 2015. This way, the conclusions reached are limited to the sample used herein. Practical implications The evidences herein presented can also contribute to establishing investment strategies, considering that the B/M ratio may be calculated through accounting information announced by companies. Besides, using historical data enable investors, in a specific year, to calculate the predictor variables for the B/M ratio and ROE in the next year, which enhance the explanatory power of the current B/M, when combined in the form of an aggregate predictor variable for stock returns. Originality/value The main contribution of this study to the literature is to demonstrate how the expected future B/M ratio and ROE may improve the explanatory capacity of the stock return, when compared with the variables traditionally studied in the literature.

Adoption of mobile banking services

2019 ◽  
Vol 37 (5) ◽  
pp. 1165-1189 ◽  
Author(s):  
Apostolos Giovanis ◽  
Pinelopi Athanasopoulou ◽  
Costas Assimakopoulos ◽  
Christos Sarmaniotis
Keyword(s):  
Theory Of Planned Behavior ◽  
Technology Acceptance ◽  
Planned Behavior ◽  
Structural Equation ◽  
Goodness Of Fit ◽  
Statistical Significance ◽  
Explanatory Power ◽  
Equation Modeling ◽  
Mobile Banking ◽  
Content Type

PurposeThe purpose of this paper is to investigate which of four well-established theoretical models (i.e. technology acceptance model, theory of planned behavior, unified theory of acceptance and use of technology, decomposed theory of planned behavior (DTPB)) best explains potential users’ behavioral intentions to adopt mobile banking (MB) services.Design/methodology/approachDrawing on data from 931 potential users in Greece, the structural equation modeling method was used to examine and compare the four models in goodness-of-fit, explanatory power and statistical significance of path coefficients.FindingsResults indicate that the best model is an extension of the DTPB with perceived risk (PR). Customers’ attitude, determined by three rationally-evaluated MB attributes (usefulness, easiness and compatibility), is the main driver of consumers’ intentions to adopt MB services. Additionally, consumers’ perceptions of availability of knowledge, resources and opportunities necessary for using the service, and the pressure of interpersonal and external social contexts toward the use of MB are the other two, less important, adoption drivers. Finally, PR negatively affects attitude formation and inhibits willingness to use MB services.Practical implicationsFindings can help marketers of financial institutions to select the more parsimonious model to develop appropriate marketing strategies to increase adoption rates of MB services.Originality/valueThis is the first study that compares the performance of four well-known innovation adoption models to explain consumers’ behavior in the MB context.

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