Unusual operating cash flows and stock returns |
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Authors: | Mei Luo |
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Affiliation: | aThe Accounting Department, School of Economics and Management, Tsinghua University, Beijing 100084, China |
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Abstract: | The current financial reporting of cash flows from operations does not present individual sources of these cash flows, making it difficult for investors to assess a firm’s future performance. I hand-collect individual cash flows from unusual operations and examine their characteristics for predicting future cash flows. The results show that the unusual individual cash flow items contain a significant incremental predictive ability for future cash flows. Additional return tests show that stock prices fail to fully reflect their predictive value, suggesting that the current reporting practice may mislead investor perceptions of a firm’s cash generating ability and investors could benefit from a more explicit presentation of cash flows from operations. |
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Keywords: | Unusual cash flows from operations Cash flow prediction Stock returns Market efficiency |
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