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Cash Flow Growth and Stock Return

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  • Benjamin A. Jansen

Abstract

I extend financial literature by presenting a model that expresses a firm’s expected stock return as a function of its expected total cash flow growth, as opposed to simply dividend growth or profits. This is important because dividends and profits do not necessarily reflect shareholder value. Cross-sectional and time-series results support the hypothesis that realized cash flow growth and expected cash flow growth are positively related to stock returns. Evidence additionally suggests that the explanatory power in cash flow growth lies in it reflecting both operating performance and investing activities of the firm, with operating performance being relatively more economically and statistically significant.

Suggested Citation

  • Benjamin A. Jansen, 2020. "Cash Flow Growth and Stock Return," Working Papers 202004, Middle Tennessee State University, Department of Economics and Finance.
    • Handle: RePEc:mts:wpaper:202004
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    File URL: http://capone.mtsu.edu/berc/working/Cash_Flow_Growth_and_Stock_Return_3_31_2020.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sinan Suleiman Abbadi, 2020. "The Moderating Role of Earnings Management on the Relationship between Cash Flow Activities and Stock Returns in the Jordanian Manufacturing Firms," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 1011-1022.

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    More about this item

    Keywords

    Stock pricing; Stock return; Cash flow growth;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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