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The impact of accruals and cash flows on the returns-earnings relation: evidence from Greece

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  • Panagiotis E. Dimitropoulos
  • Dimitrios Asteriou

Abstract

This paper aims at examining the impact of earnings and cash flows relevance on stock return movements within the Greek capital market from 1996 to 2004. Results indicated that earnings have higher incremental importance in explaining stock return movements compared with cash flows as earnings have been found to affect stock returns positively. Additionally, tests on the incremental informativeness of cash flows when earnings are transitory did provide significant results suggesting that investors seek for alternative measures of firms' performance when earnings are characterised by increased extremity. Moreover, cash flows and earnings seem to be equally value relevant when investors evaluate big-sized firms but on the contrary, cash flows are highly valued for firms with increased growth opportunities. Finally, the empirical findings with respect to the effect of leverage on the informational content of earnings and cash flows, provides support to the hypothesis that earnings become less value relevant for high leveraged firms.

Suggested Citation

  • Panagiotis E. Dimitropoulos & Dimitrios Asteriou, 2009. "The impact of accruals and cash flows on the returns-earnings relation: evidence from Greece," International Journal of Accounting, Auditing and Performance Evaluation, Inderscience Enterprises Ltd, vol. 5(4), pages 384-407.
    • Handle: RePEc:ids:ijaape:v:5:y:2009:i:4:p:384-407
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    Cited by:

    1. Dimitropoulos, Panagiotis E. & Asteriou, Dimitrios & Kousenidis, Dimitrios & Leventis, Stergios, 2013. "The impact of IFRS on accounting quality: Evidence from Greece," Advances in accounting, Elsevier, vol. 29(1), pages 108-123.

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