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The operating cycle and the information content of earnings and cash flow

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  • Plenborg, Thomas

Abstract

Prior studies have found that earnings are relatively more informative than cash flows (e.g. Ali and Pope, 1993; Ali, 1994; Plenborg, 1996). Applying Danish data this study investigates whether the length of the operating cycle is a useful explanation for the superiority of earnings over cash flows in explaining the contemporaneous stock return. Using a capital market approach, the study finds that the explanatory power of earnings is stable, but the explanatory power of cash flows declines as the length of the operating cycle increases. This finding holds across various research designs and model specifications.

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  • Plenborg, Thomas, 1998. "The operating cycle and the information content of earnings and cash flow," Scandinavian Journal of Management, Elsevier, vol. 14(3), pages 273-287, March.
    • Handle: RePEc:eee:scaman:v:14:y:1998:i:3:p:273-287
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    Cited by:

    1. Duran-Vazquez, Rocio & Lorenzo-Valdes, Arturo & Ruiz-Porras, Antonio, 2011. "Valuación de acciones mexicanas mediante los modelos de Ohlson y Ohlson-Beta para firmas con ciclos de corto y largo plazos: Un análisis de cointegración [Valuation of Mexican stocks with the Olhso," MPRA Paper 33054, University Library of Munich, Germany.
    2. Miao Li & Luluo Peng & Guijun Zhuang, 2020. "Sales Control Systems and Salesperson Commitment: The Moderating Role of Behavior Uncertainty," Sustainability, MDPI, vol. 12(7), pages 1-18, March.

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