The implications of cash flows for future earnings and stock returns within profit and loss firms
Vassilios‐Christos Naoum and
Georgios A. Papanastasopoulos
International Journal of Finance & Economics, 2021, vol. 26, issue 2, 2927-2945
The current study examines the association of cash subcomponents of earnings with future profitability and stock returns, conditional on the sign of current profitability. The empirical findings, based on a sample of U.K. listed firms for the period 1989–2013, indicate that, the higher persistence of the cash component of earnings is entirely attributable to cash distributions to equity holders and that investors fail to anticipate this higher persistence, leading to significant mispricing. Cash distributions to equity holders appear to have a positive relation with future returns. Furthermore, we show that the positive effect of the cash subcomponent related to equity financing activities on future earnings and stock price performance, is highly attenuated across profit firms, and becomes more severe across loss firms. Overall, our findings lend support to the earnings fixation hypothesis in explaining the pricing implications of the cash component of earnings on future stock returns.
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wly:ijfiec:v:26:y:2021:i:2:p:2927-2945
Ordering information: This journal article can be ordered from
http://jws-edcv.wile ... PRINT_ISSN=1076-9307
Access Statistics for this article
International Journal of Finance & Economics is currently edited by Mark P. Taylor, Keith Cuthbertson and Michael P. Dooley
More articles in International Journal of Finance & Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().