The value relevance of earnings, operating cash flow and accruals: A study on UK data

N Garrod, B Giner and M Larrán

South African Journal of Accounting Research, 2003, vol. 17, issue 1, 1-22

Abstract: The purpose of the work reported in this paper is to establish the value relevance of earnings, operating cash flows and accruals for UK companies. Innovations in this paper are threefold: the use of a valuation rather than a returns model to test value relevance; the prior that earnings and cash flow measure are complementary rather than competing measures of company performance; and the introduction of various economic contingencies or contextual factors, which are hypothesised to influence the valuation multipliers applied to earnings and their component variables. The results confirm the complementarity of earnings and cash flow for valuation purposes and that the valuation multipliers applied to the components of earnings do vary with specific company characteristics.

Date: 2003
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DOI: 10.1080/10291954.2003.11435103

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