Authors: Jaouida Elleuch Trabelsi
Addresses: Institute of the High Commercial Studies of Sfax (IHEC), University of Sfax, UR: MO.DE.S.FI, P.O. Box 43 – 3061, Sfax, Tunisia
Abstract: This study examines the value-relevance of three performance measures: earnings, cash flows from operations (CFO) and funds flows from operations (FFO). It addresses three questions. First, do accounting earnings and cash flows data have information content? Second, does accounting earnings (cash flows) have incremental information content over cash flows (earnings)? Third, does the incremental information content of cash flows (earnings) increases (decreases) with a decrease in the permanence of earnings? The empirical findings are consistent with: 1) all three performance measures having explanatory power for returns individually and earnings performing better than cash flows in explaining security price variation; 2) earnings having incremental information content beyond CFO and FFO; 3) CFO having incremental information content beyond earnings; 4) FFO having no incremental information content over earnings. Results do not however support any increase in the incremental information content of cash flows when earnings are fundamentally transitory.
Keywords: security returns; accounting earnings; cash flows; value relevance; Tunisia; stock markets; fund flows; performance measures; security price variation; incremental information content.
International Journal of Accounting and Finance, 2013 Vol.4 No.1, pp.98 - 117
Received: 06 Oct 2011
Accepted: 29 Oct 2012
Published online: 05 Apr 2013 *