Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/17130
Title: The supplemental role of operating cash flows in explaining share returns : effect of various measures of earnings quality
Authors: Cheng, CSA 
Johnston, J
Liu, CZ
Keywords: Accounting
Cash flow
Earnings
Earnings quality
Financial accounting
Firm valuation
Operating cash flows
Returns
United States of America
Issue Date: 2013
Source: International journal of accounting and information management, 2013, v. 21, no. 1, p. 53-71 How to cite?
Journal: International Journal of Accounting and Information Management 
Abstract: Purpose - In response to recent concerns on earnings quality and a firm's fundamental performance, the purpose of this paper is to re-examine salient questions under accrual accounting: how earnings quality affects the role of earnings and operating cash flows in a firm's valuation. Design/methodology/ approach - Using a large sample ranging from 1989 to 2008, the authors contrast the effects of three representative accrual-based earnings quality measures on the association between earnings, operating cash flows and a firm's abnormal stock returns. Findings - In the univariate analysis it was found that earnings explain returns similarly to operating cash flows. With control of earnings quality, the results indicate that earnings' role in explaining contemporaneous abnormal returns remains unchanged when earnings quality is better. Conversely, operating cash flows explain more contemporaneous abnormal returns when earnings quality is better. The findings could suggest that the market reacts to operating cash flows conditionally on earnings quality. Intriguingly, the results also indicate that the market perceives better earnings quality captures superior performance of operating cash flows rather than that of earnings. These findings are further fortified by additional analyses revealing that the earnings quality measure with control of operating cash flows affects the supplemental role of operating cash flows most. Originality/value - The paper's findings provide insights on how the market processes firm value signals embedded in earnings quality, which have direct implications for regulators, standard setters, academics and practitioners.
URI: http://hdl.handle.net/10397/17130
ISSN: 1834-7649
DOI: 10.1108/18347641311299740
Appears in Collections:Journal/Magazine Article

Access
View full-text via PolyU eLinks SFX Query
Show full item record

SCOPUSTM   
Citations

5
Last Week
0
Last month
1
Citations as of Oct 15, 2017

Page view(s)

55
Last Week
5
Last month
Checked on Oct 16, 2017

Google ScholarTM

Check

Altmetric



Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.