The Relationship between Earnings before Interest and Taxes and Operating Cash Flow and Stock Return under the Condition of Information Asymmetry in Abadan and Arak Petrochemical Companies through Markov-Switching Approach

Abolghasem Masihabadi (), Ali Taghavi Moghaddam (), Amir Shams Koloukhi () and Rouhollah Rahmani ()
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Abolghasem Masihabadi: Department of Accounting, Sabezevar Branch, Islamic Azad University, Sabezevar, Iran
Ali Taghavi Moghaddam: Department of Accounting, Bojnourd Branch, Islamic Azad University, Bojnourd, Iran
Amir Shams Koloukhi: Department of Management, Torbat-e-Jam Branch, Islamic Azad University, Torbat-e-Jam, Iran
Rouhollah Rahmani: Department of Accounting, Neyshabur, Islamic Azad University, Neyshabur, Iran

Marketing and Branding Research, 2015, vol. 2, issue 1, 74-88

Abstract: This research investigated the relationship between earnings before interest and taxes and operating cash flow and shareholders’ return in Abadan and Arak Petrochemical Companies. This relationship was tested under the condition of information asymmetry. Nonlinear Markov-Switching approach was adopted to test the hypotheses. The results of empirical tests through the data in 2001-2010 indicated that in Arak Petrochemical Company, both variables of earnings before interest and taxes and operating cash flow had significant relationship with stock return of company. However, in Abadan Petrochemical Company, only the variable of earnings before interest and taxes had significant and positive relationship with stock return of company. Increase in information asymmetry showed that variable of operating cash flow had a stronger relationship with stock return of companies than the variable of earnings before interest and taxes. In other words, under the condition of information asymmetry, cash flow variables had higher correlation with stock return of companies than accrual variables.

Keywords: shareholders’ total return; cash flow; accruals; Information Asymmetry; Markov-Switching approach (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:bco:mbraaa::v:2:y:2015:p:74-88

DOI: 10.33844/MBR.2015.60316

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