The Incremental Information Content of Earnings, Funds Flow and Cash Flow: The U.K. Evidence
Posted: 15 Sep 1999
Date Written: September 1994
Abstract
This paper investigates the incremental information content of three accounting performance measures for U.K. firms: earnings, funds flow and cash flow. Based on tests of association using the most general specifications suggested by the recent literature incorporating time-varying parameters and a non-linearity in response coefficients, a pattern of consistent results emerges. All three performance measures have explanatory power for returns individually and the response coefficients on their unexpected components are positive. The results further show that earnings, funds flow and cash flow all have incremental information content.However, the response coefficients on the unexpected components are consistently positive across years only for earnings and funds flow.
JEL Classification: M41
Suggested Citation: Suggested Citation