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Causality between Cash Flow and Earnings: Evidence from Tehran (Iran) Stock Exchange

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  • Ahmad Nasseri
  • Mohammad Sayyadi
  • Hassan Yazdifar
  • Rasol Eskandari
  • Mohammad Albahloul

Abstract

This article employs data from 155 companies from 27 different industries listed on the Tehran Stock Exchange (TSE) for the period from 2000 to 2009 to examine the direction of causality between cash flow and earnings after taking consideration of stationarity and co-integration. The results indicate that there is a bidirectional causal relationship between cash flow and earnings at the level of all individual companies, so that cash flow variables caused earning variables and vice versa. However, at the level of industrial sectors, causality exists only between earning before interest and taxation (EBIT) and cash flow from operating activities (CFOA).

Suggested Citation

  • Ahmad Nasseri & Mohammad Sayyadi & Hassan Yazdifar & Rasol Eskandari & Mohammad Albahloul, 2018. "Causality between Cash Flow and Earnings: Evidence from Tehran (Iran) Stock Exchange," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(2), pages 210-228, August.
    • Handle: RePEc:sae:emffin:v:17:y:2018:i:2:p:210-228
    DOI: 10.1177/0972652718776860
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