The Relationship between Earnings Before Interest and Tax and Operating Cash Flow and Stock Return in Information Asymmetry Conditions at Pharmaceutical Companies of Abidi and DarouPakhsh Applying Markov-Switching Approach

Interdisciplinary Journal of Contemporary Research in Business, Vol 5, No 2, June 2013

13 Pages Posted: 13 Jul 2014

See all articles by Dr.Hossein Parsian

Dr.Hossein Parsian

Plan and Budget organization of Iran

Amir Shams Koloukhi

Islamic Azad University - Young Researchers and Elites Club

Mojtaba Akbarpour

Panjab University

Sajad Abdipoor

Panjab University

Date Written: June 10, 2013

Abstract

One of most fundamental economic issues is optimal resource allocation towards productive investment with rational risk-taking. In doing so, there is a need to performance evaluation indices, some of which emphasize upon cash flow variables and some others upon information contents of accounting earning. Therefore, it is tried to consider the relationship between earnings before interest and tax and operating cash flow and shareholders return at pharmaceutical companies of Abidi and DarouPakhsh. Then this relationship was tested in conditions of information asymmetry. In order to test hypotheses, nonlinear Markov-switching was applied. Results obtained from experimental tests using relating information from 2002 to 2011 indicate that independent variable of earnings before interest and tax has no significant relationship with stock returns of two companies. In other words, earnings before interest and tax have information content toward operating cash flow. Also by increasing information asymmetry it was observed that variable of earnings before interest and tax have more correlation with companies’ stock return towards variable of operating cash flow. In other words, in conditions of information asymmetry, accrual variables have more information content towards variables of cash flow.

JEL Classification: G10, M00

Suggested Citation

Parsian, Hossein and Shams Koloukhi, Amir and Akbarpour, Mojtaba and Abdipoor, Sajad, The Relationship between Earnings Before Interest and Tax and Operating Cash Flow and Stock Return in Information Asymmetry Conditions at Pharmaceutical Companies of Abidi and DarouPakhsh Applying Markov-Switching Approach (June 10, 2013). Interdisciplinary Journal of Contemporary Research in Business, Vol 5, No 2, June 2013, Available at SSRN: https://ssrn.com/abstract=2464063

Hossein Parsian (Contact Author)

Plan and Budget organization of Iran ( email )

Tehran, Tehran
Iran

Amir Shams Koloukhi

Islamic Azad University - Young Researchers and Elites Club ( email )

Torbat-e-Jam Branch
Torbat-e-Jam
Iran

Mojtaba Akbarpour

Panjab University ( email )

Sector 14
Sector 14
Chandigarh, 160014
India

Sajad Abdipoor

Panjab University ( email )

Sector 14
Sector 14
Chandigarh, 160014
India

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