Causality between Cash Flow and Earnings: Evidence from Tehran (Iran) Stock Exchange

Nasseri, Ahmad; Mohammad, Sayyadi; Yazdifar, Hassan; Eskandari, Rasol; Bahloul, Mohammad Al

doi:10.1177/0972652718776860

Cited by 4 publications

(7 citation statements)

References 39 publications

(65 reference statements)

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“…The equations are as follows: We control for the cross-sectional characteristics such as size (Size), degree of financial leverage (Lev) and growth opportunities (Growth) of firms to ensure that our findings are not driven by fundamental differences between firms. Our empirical models are as follows: The proportion of total outside liabilities to total assets Growth Percentage change in sales from period First, there is bidirectional causality between earnings and cash flow consistent with the finding of many prior studies (for example, Bezuidenhout et al, 2008;Bepari et al, 2013;Nasseri et al, 2018). Cash flow is a significant component of earnings; hence, both are closely dependent on each other.…”

Section: Value Relevance Of Earnings In Indiasupporting

confidence: 69%

“…The findings of the previous studies that examined the relationship between earnings and cash flow are mixed and inconclusive. Among empirical studies, one stream of research (for Value relevance of earnings in India example, Lorek and Willinger, 1996;Barth et al, 2001;Kim and Kross, 2005;Dechow et al, 1998;Bezuidenhout et al, 2008;Nasseri et al, 2018) find earnings as the better predictor of future cash flows, whereas another stream of research (for example, Burgstahler et al, 1998;Krishnan and Largay, 2000) find that current cash flow is superior to earnings in predicting future cash flow. Mostafa (2017) finds that earnings of firms with low operating performance (that are engaged in opportunistic earnings management strategies) have less value relevance than earnings of firms with high operating performance, i.e.…”

Section: Earnings and Cash Flowmentioning

confidence: 99%

“…Hence, the results strengthen our main findings that reported earnings can forecast value variables. Second, following Nasseri et al (2018), we use three different measures of earnings and reexamine the entire analysis. These three earnings measures are profit before depreciation, amortization and interest (PBDITA), profit before provisions and tax (PBPT) and profit before tax (PBT).…”

Section: Robustness Measuresmentioning

confidence: 99%

“…Value relevance literature document the causality between earnings and variables that assist the investors during investment decisions. These variables are cash flow, capital investment (CI), dividend and stock return (Nasseri et al , 2018). Literature provides mixed and inconclusive results.…”

Section: Introductionmentioning

confidence: 99%

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Predictive view of the value relevance of earnings in India

Bashir

Bansal

Kumar

2021

JFRA

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Purpose This study aims to examine the value relevance of earnings in terms of predicting the value variables such as cash flow, capital investment (CI), dividend and stock return under the Indian institutional settings. Design/methodology/approach The study used panel Granger causality tests to examine causality relationships among variables and panel data regression models to check the statistical associations between earnings and value variables. Findings Based on a data set of 7,280 Bombay Stock Exchange-listed firm-years spanning over ten years from March 2009 to March 2018, the results show higher sensitivity of earnings toward cash flows, CI, divided and stock return and vice-versa. Further, the findings deduced from the empirical results demonstrate that earnings are positively related to value variables. Overall, the results established that earnings are value-relevant and have predictive ability to forecast the value variables that facilitate investors in portfolio valuation. The results are consistent with the predictive view of the value relevance of earnings. Several robustness checks confirm these results. Originality/value This study brings new empirical evidence from a distinct capital market, India, and provides a new facet to the value relevance debate in terms of its prediction view. The study is among earlier attempts that jointly measure the ability of earnings in forecasting different value variables by taking a uniform sample of firms at the same period. Hence, the study provides a comprehensive view of the predictive ability of reported earnings.

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Section: Value Relevance Of Earnings In Indiasupporting

confidence: 69%

Section: Earnings and Cash Flowmentioning

confidence: 99%

Section: Robustness Measuresmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Predictive view of the value relevance of earnings in India

Bashir

Bansal

Kumar

2021

JFRA

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“…Penelitian Dawar (2015) meneliti dalam kasus perusahaan-perusahaan yang mematuhi Syariah di India dengan jangka waktu 10 tahun, hasilnya arus kas saat ini lebih unggul dari arus kas periode berikutnya daripada laba agregat saat ini dalam kemampuan prediksinya. Andayani danWirajaya (2015) meneliti perusahaan manufaktur berjumlah 40 periode 2011-2013 di BEI, hasilnya variabel bebas yaitu arus kas operasi mempunyai kemampuan dalam memperkirakan future cash flow, sedangkan variabel bebas lain seperti modal kerja operasional, laba ditambah depresiasi, dan laba tidak mempunyai kemampuan prakiraan.Penelitian lain terkait arus kas masa depan ialah penelitianLaksmi dan Ratnadi (2014) meneliti di perusahaan Consumer Goods periode 2005-2012 tercatat dalam Bursa Efek Indonesia, dengan kesimpulan arus kas operasi mempunyai kemampuan tidak berlainan dibanding laba bersih dalam memperkirakan future cash flow Nasseri et al (2018). menguji kausalitas antara cash flow dan earnings menggunakan 155 perusahaan di Bursa Efek Teheran untuk periode 2000-2009, dengan hasilnya adalah ada hubungan kausal dua arah antara cash flow dan earnings pada tingkat semua perusahaan individu.…”

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Analisis Kemampuan Informasi Laba dan Arus Kas dalam Memprediksi Arus Kas Masa Depan

Pangestu

2020

BAKI

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The purpose of this study is to examine whether earnings information or cash flow information can predict future cash flows in service companies in Indonesia. The sample determined in this study, using the purposive sampling method, produced 145 companies listed on the Indonesian Stock Exchange in 2015-2017, with a total of 435 observations. In this study, multiple regression analysis techniques are used. The results shown by the t-test are partially significant net income. In this case, net income is a predictor of future cash flows. Whereas cash flow information namely operating cash flow, investing cash flow, and funding cash flow do not affect the future cash flow

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The impact of Covid-19 pandemic on the value relevance of cash flows: evidence from banks

Abou-El-Sood

2023

IJOEM

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PurposeThis paper is motivated by the ongoing debate on the value relevance of cash flow statement (CFS) between bank regulators, on one hand, and accounting standard setters, on the other hand. The importance and usefulness of cash flows during economic turmoil exacerbated by the Covid-19 pandemic has recently gained attention. Hence, this paper investigates the impact of Covid-19 pandemic on the value relevance of cash flows (CF) beyond accounting earnings and book equity.Design/methodology/approachA panel of 236 bank-year observations is examined for value relevance in emerging capital markets of Gulf Cooperation Council (GCC) countries. Using value relevance regression, operating and non-operating CF items are tested for value relevance beyond earnings and book value of equity during the periods 2018–2019 (pre-pandemic) and 2020–2021 (pandemic).FindingsThere is limited value relevance of CF beyond accounting earnings and the book value of equity. The distinction between operating and non-operating CF is not informative. However, the value relevance is significant during the pandemic, indicating that investors rely on CF for valuation purposes at times of uncertainty, corroborating further research on CF distress predictive ability.Originality/valueThis paper provides novel evidence on value relevance of CF and its superiority to accounting earnings and equity values during times of uncertainty. It extends a small body of research in the banking sector in emerging markets. Hence, it complements prior literature and has practical implications to accounting standard setters and bank regulators in emerging markets.

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Causality between Cash Flow and Earnings: Evidence from Tehran (Iran) Stock Exchange

Cited by 4 publications

References 39 publications

Predictive view of the value relevance of earnings in India

Predictive view of the value relevance of earnings in India

Analisis Kemampuan Informasi Laba dan Arus Kas dalam Memprediksi Arus Kas Masa Depan

The impact of Covid-19 pandemic on the value relevance of cash flows: evidence from banks

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