Analytical Review of the Ability of Accrual and Cash Flow Components of Earnings to Forecast Future Abnormal Earnings and Equity Values

اقتصاد پولی مالی

Article 4, Volume 18, Issue 1, January 2012   

Document Type: پژوهشی

DOI: 10.22067/pm.v18i1.27591

Authors

Mohammad Reza Abbaszadeh^* ; Mahbubeh Kazemi; Abdollah Azad

Abstract

This Paper investigates the link between accrual and cash flow components of
earnings and future abnormal earnings and Equity Values. The base of tests in This
paper is Ohlson (1999) model and net income, equity book value and return on
equity book value, is the variables that used in this paper. The statistical population
of this research is the firms accepted in the Tehran stock exchange that examined for
the time period between 2000 & 2009 by 132 firms as the sample.
The results of empirical tests indicate that as predicted, accruals are incrementally
informative regarding future abnormal earnings. Moreover, cash flows are
significantly incrementally informative regarding future abnormal earnings. The
results also reveal that the findings relating to accruals and cash flows in the
abnormal earnings equations are “mirror images” of each other. The results also
indicate that the accrual and cash flow components of earnings are incrementally
valuation relevant.

Keywords

accruals; cash flows; abnormal earnings and market equity values