Associations between Cash Flows and Market Prices: Evidence from Jordan

Abstract

The purpose of the paper is to examine the associations between a firm's cash flows and their prices. The author attempts to answer two questions: (1) Does the separation of earnings into operating cash flows and accruals have more information value to users than earnings? and (2) Do cash flow headings (operating, investing, and financing) have more information value to users than earnings? Six variables are used cash flows from operation (OCF), investing cash flows (ICF), financing cash flows (FCF), earnings (EPS), prices (P) and accruals (ACC). The reason for selecting these variables is to test information content of cash flow statements as reported from Jordon firms under IAS 7 (revised 1992). Three regression equations will be used in this analysis. The results support cash flows, earnings and accruals that have associations with market prices. The results on cash flows are consistent with Livnat and Zurowin (1990), Garrod and Hadi (1999), Board et al. (1989) and Board, Day and Napier (1993).