Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings?
THE ACCOUNTING REVIEW, Vol 71, No 3, Spring 1996
Posted: 5 Jul 1998
This paper investigates whether stock prices reflect information about future earnings contained in the accrual and cash flow components of current earnings. The extent to which current earnings performance persists into the future is shown to depend on the relative magnitudes of the cash and accrual components of current earnings. However, stock prices are found to act as if investors "fixate" on earnings, failing to fully reflect information in the accrual and cash flow components of current earnings until it impacts future earnings.
JEL Classification: M41, G14
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