The impact of accounting earnings and cash flows on stock returns and the role of accruals in measurement of firm performance - A study on Ho Chi Minh city stock exchange
Abstract
This thesis paper compares the effect of accounting earnings and cash
flows on stock returns and investigates the situation where accruals are proved to
improve the ability of earnings to measure firm performance, as described by stock
abnormal returns. The ideas applied in the thesis come from the previous famous
studies of Dechow (1994) and Rayburn (1986). The research uses data samples of
non-financial services firms listed on Ho Chi Minh City Stock Exchange ranging from
2012 to 2016. From that, 520 observations are collected and analyzed using panel data
and statistical tools obtain from Eviews8 software. The empirical evidence from the
tests shows that compared to two measurements of cash flows, the earnings have more
explanatory power over stock returns. And when decomposing the accruals
components, only the changes in working capital, depreciation and net cash flows
remain their significant influence, hence having the information content and helping
enhance the predictive ability of the accrual adjustments