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

Ahmad Nasseri, Mohammad Sayyadi, Hassan Yazdifar, Rasol Eskandari and Mohammad Albahloul

Journal of Emerging Market Finance, 2018, vol. 17, issue 2, 210-228

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).

Keywords: Cash flow; earnings; Granger causality; stationarity; co-integration; Tehran Stock Exchange; Iran (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:17:y:2018:i:2:p:210-228

DOI: 10.1177/0972652718776860

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