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Accruals, cash flows, and aggregate stock returns

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  • Hirshleifer, David
  • Hou, Kewei
  • Teoh, Siew Hong

Abstract

This paper examines whether the firm-level accrual and cash flow effects extend to the aggregate stock market. In sharp contrast to previous firm-level findings, aggregate accruals is a strong positive time series predictor of aggregate stock returns, and cash flows is a negative predictor. In addition, innovations in accruals are negatively contemporaneously correlated with aggregate returns, and innovations in cash flows are positively correlated with returns. These findings suggest that innovations in accruals and cash flows contain information about changes in discount rates, or that firms manage earnings in response to marketwide undervaluation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 91 (2009)
Issue (Month): 3 (March)
Pages: 389-406

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Handle: RePEc:eee:jfinec:v:91:y:2009:i:3:p:389-406

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Aggregate stock returns Accruals Cash flows Discount rates Behavioral finance;

References

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Citations

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Cited by:
  1. Forough Heyrani & Saeid Saeida Ardakani & Mahboubeh Dehestani Ardakani, 2013. "The Impact of High Earnings on the Informational Content of Cash Flows in the Listed Companies on Tehran Stock Exchange," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 3(4), pages 215-223, October.
  2. Christian Calmès & Denis Cormier & Francois Éric Racicot & Raymond Théoret, 2012. "Firms' Accruals and Tobin’s q," RePAd Working Paper Series UQO-DSA-wp032012, Département des sciences administratives, UQO.
  3. Tsangyao Chang & Wen-Yi Chen & Rangan Gupta & Duc Khuong Nguyen, 2013. "Are Stock Prices Related to Political Uncertainty Index in OECD Countries? Evidence from Bootstrap Panel Causality Test," Working Papers 201360, University of Pretoria, Department of Economics.
  4. Jorgensen, Bjorn & Li, Jing & Sadka, Gil, 2012. "Earnings dispersion and aggregate stock returns," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 1-20.
  5. Kothari, S.P. & Ramanna, Karthik & Skinner, Douglas J., 2010. "Implications for GAAP from an analysis of positive research in accounting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 246-286, December.
  6. repec:ipg:wpaper:36 is not listed on IDEAS
  7. Sadka, Gil & Sadka, Ronnie, 2009. "Predictability and the earnings-returns relation," Journal of Financial Economics, Elsevier, vol. 94(1), pages 87-106, October.

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