Life-Cycle Impacts on the Incremental Information Content of Earnings and Cash Flow Measures
Posted: 21 Apr 1997
Date Written: April 1997
The focus of this study is on the incremental information content of earnings, operating cash flows, investing cash flows, and financing cash flows, within each of four life-cycle stages: start-up, growth, mature, and decline. As predicted earnings and operating cash flows are incrementally informative in life-cycle stages when assets in place are a major component of firm value. Investing and financing cash flows are incrementally informative in life- cycle stages characterized by relatively fewer assets in place and more growth opportunities. Overall, these results provide additional support for the usefulness of the cash flow statement required by FAS 95. However, the evidence suggests that the usefulness of the three components of the cash flow statement depends on the life-cycle stage of the firm, which has implications for users of financial statements.
JEL Classification: M41, G12
Suggested Citation: Suggested Citation