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Accruals, Cash Flows, and Equity Values

Author

Listed:
  • Mary E. Barth

    (Stanford University)

  • William H. Beaver

    (Stanford University)

  • John R. M. Hand

    (University of North Carolina at Chapel Hill)

  • Wayne R. Landsman

    (University of North Carolina at Chapel Hill)

Abstract

We find, as predicted, that the differential ability of accrual and cash flow components of earnings to help forecast future abnormal earnings and the persistence of the components result in the components having different valuation implications. We base our tests on Ohlson (1999) applied to fourteen industries. We find: (1) Accruals and cash flows aid in forecasting future abnormal earnings incremental to abnormal earnings and equity book value. (2) Accruals and cash flows provide explanatory power for equity market value incremental to equity book value and abnormal earnings. (3) There is evidence that accruals and cash flows valuation coefficients are consistent with the Ohlson model.

Suggested Citation

  • Mary E. Barth & William H. Beaver & John R. M. Hand & Wayne R. Landsman, 1999. "Accruals, Cash Flows, and Equity Values," Review of Accounting Studies, Springer, vol. 4(3), pages 205-229, December.
    • Handle: RePEc:spr:reaccs:v:4:y:1999:i:3:d:10.1023_a:1009630100586
    DOI: 10.1023/A:1009630100586
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    References listed on IDEAS

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    1. Lipe, Rc, 1986. "The Information Contained In The Components Of Earnings," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 24, pages 37-64.
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    Cited by:

    1. Wayne R. Landsman & Ken V. Peasnell & Peter F. Pope & Shu Yeh, 2006. "Which approach to accounting for employee stock options best reflects market pricing?," Review of Accounting Studies, Springer, vol. 11(2), pages 203-245, September.
    2. Stephen H. Penman & Nir Yehuda, 2009. "The pricing of earnings and cash flows and an affirmation of accrual accounting," Review of Accounting Studies, Springer, vol. 14(4), pages 453-479, December.
    3. Shai Levi, 2008. "Voluntary disclosure of accruals in earnings press releases and the pricing of accruals," Review of Accounting Studies, Springer, vol. 13(1), pages 1-21, March.
    4. Dimitrios C. Ghicas & Afroditi Papadaki & Georgia Siougle & Theodore Sougiannis, 2008. "The relevance of quantifiable audit qualifications in the valuation of IPOs," Review of Accounting Studies, Springer, vol. 13(4), pages 512-550, December.

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